President Trump signed the Tax Cuts and Jobs Act into law on December 22, 2017. Tax reform offered sweeping changes for the individual taxpayer and business entity, like a limited liability company (LLC).
For years now, the limited liability company has been one of the most popular business entities to form. As pass-through entities, limited liability companies offer more favorable tax treatment than a C corporation with the liability property of a partnership.
The 2017 tax reform may cause a rise in limited liability company ownership in coming years. Many LLC owners will be able to take a 20% tax deduction on pass-through income, making the limited liability company even more attractive.
Business entities are taxed differently. For example, a C corporation pays a corporate income tax, then the owners also pay personal income tax. However, sole proprietors, S corporations, partnerships, and limited liability companies are called “pass-through” entities. The entity itself does not pay federal income tax. Instead, individual owners report the company’s income as personal income tax, escaping the double taxation faced by C corporation owners.
The 2017 tax reform changes the way pass-through entities are taxed. Limited liability companies that qualify may receive a tax deduction of up to 20%. Most limited liability companies qualify. Those that don’t qualify are considered Specified Service Businesses. Limited liability companies owned by performing artists, accountants, healthcare providers, and lawyers fit this category. For such businesses, the 20% deduction applies for tax year 2023 up to an income limit of $182,100, filing singly, or $364,200 for married filing jointly, in qualified business income, then begins to phase out. At the $210,700 level for single filers or $421,000 for married joint filers, the 20% deduction disappears entirely.
Applying the 2017 Tax Reform to your current and future business opportunities may seem like a good idea. However, consider all options, including the possibility that tax law may change again in the coming years. Every situation is unique and must be considered with care. There are some limited situations where C Corporation tax treatment might actually make the most sense.
Do you question the need for attorney guidance with so many online resources? Because laws and regulations are complex, and because every person has a lot at risk, more people than ever are seeking professional guidance from an experienced, knowledgeable source. That helps explain the rapid growth of our firm. Whether you happened upon this website by accident or are one of the many referrals we receive from a nearly 15-year collection of satisfied clients, our staff can provide customized estate planning guidance for you. Call us. Our number: 1 (772) 218-0480