How the New Tax Law Affects Business Owners

Did you know that only 50% of taxpayers pay income taxes?  That won’t change with the new tax laws.  However, there is good news for those 50% that do pay.

As we were preparing 2017 tax returns this year, our tax software provided a comparison of  what our client’s 2017 income will look like under the 2018 tax law.  For those we serve – the majority found their tax liability would go down.  However, it depends on your specific circumstances.

Here are the situations in which taxpayers lose-

  • For those reporting itemized employees expenses – they will lose them in 2018
  • For businesses that claim high entertainment expenses – they will lose the 50% tax deduction this year.
  • For those who pay more than $10,000 in state taxes -you will only be allowed to claim up to $10,000 of real estate and state income taxes as itemized deductions.

Here are situations in which taxpayers will win – 

  • Those who qualify for the 20% pass through business deduction.  If you report business income on your personal income tax return, you may be able to reduce your taxable income by 20% of your business income.   The calculation is complicated and each situation has different facts.
  • Lower tax rates for those that were in the 15% bracket up.  The new rates range from 10% to 37%.
  • Fewer will pay Alternative Minimum Tax (AMT).  They changed the rules.

Areas that still need clarification –

  • A clearer definition as to what is a “service business”.
  • For rental property income will this be treated as business income.?
  • Are the meals associated with entertainment still 50% tax deductible?

If you want to know more about your specific situation, we offer tax-planning meetings.  Call our office, 920-351-4842 to learn more or schedule your appointment.

By Mary Guldan-Lindstrom

Leave a Comment

Get Printed Copies Of the Newsletter