paperwork tax break Accounting and taxes. Large pile of magazine and books closeup

Does Your Business Qualify for the New 20% Tax Break?

author-thumbnail Grover Collins

BY Grover Collins

Founder & Managing Member

Tax Cuts & Jobs Act Provides a 20% Tax Break [to Some]

On December 20, 2017, Congress passed the Tax Cuts and Jobs Act, designed to cut taxes on businesses, stimulate the economy and create jobs. While the long-term impact on the government’s deficit is unclear, what is certain is that many small business owners may benefit from kinder tax treatment under the new law


One of the major changes from the Tax Cuts and Jobs Act (TCJA) includes a 20% deduction for qualified business income from pass-through entities, which are special business structures used to reduce the effects of double taxation. These entities are called pass-throughs because profits are passed directly through the business to the owners and are taxed on the owners’ individual income tax returns. Examples of pass-through businesses include sole proprietorships, partnerships, limited liability companies (LLCs) and S corporations.


Under the old tax code, income passed through to the owner was subject to individual income tax rates as high as 39.6%. The TCJA allows owners to deduct 23% of their income, which helps them save a substantial amount on taxes. While the benefits are clearly there, is it time for you to incorporate your business? If so, which entity should you choose?


Before you run off and become an LLC, there are caveats to saving on taxes under this new plan. In general, your taxable income must be under $157,500 (single) or $315,000 (joint) to qualify for the full deduction. If taxable income does exceed either one of these limits, the law places limits on who can utilize the break, such as entrepreneurs with service businesses (doctors, lawyers, etc.). Owners may also find themselves out of the 20% deduction—while their partners enjoy it—because of high-income spouses. Finally, in exchange for these lower rates, owners may take on more responsibility and expenses in bookkeeping and payroll needs.

It’s unsure what the future will hold for the scooter-sharing service in Nashville. Given the history of regulating golf carts, it wouldn’t be surprising if Bird came before the city council by end of summer.


→   TAX CUTS AND JOBS ACT: Communications and Policy Details

→   THE CPA JOURNAL: First Look at the Tax Cuts and Jobs Act

→   FORBES: The Good, The Bad And The Ugly Of The Tax Cuts And Jobs Act

Legal Disclaimer

All information provided on this website is for general information and attorney advertising purposes only and not intended as legal advice. Persons reading information found on this website should not act upon this information without seeking the advice of legal counsel. Said information on this website is not intended to create an attorney-client relationship. Receiving and/or viewing said information does not constitute an attorney-client relationship. Prior to acting on any legal information found on this website or otherwise, Collins Legal advises you to seek the advice of legal counsel.