- This topic has 12 replies, 6 voices, and was last updated 8 years, 5 months ago by
.
-
Posts
-
-
I just read this online:
Sole proprietorships, S corporations, partnerships and LLCs are all pass-through businesses. In the new tax bill (beginning in tax-year 2018), Sole-proprietorships and S-Corps are considered pass-through business that pays taxes through the individual income tax code, rather than through the corporate tax code and gets a sizeable downwards adjustment in the amount passed through. This can effectively lower your taxes up to 20%.
Under the new tax bill, pass-through business owners can deduct 20% of their business income, which will lower their tax liability. So, for example, if your online business made a profit of $50,000, you would only pay taxes on $40,000, and your personal tax rate would apply to that -not the corporate rate.
We have a General Partnership and “pass through” profits to ourselves and pay those taxes each year.
–Has anyone else looked into this?
Obviously these are questions for our accountant, but thought I’d see if others are digging into this.
-
Hey Jay:
Just in our own case, we have been a sub S Corporation for many, many years and it has always been a pass through scenario for S-Corps. Nothing new there. What may be different is the percentage rate though, if that is what you are asking about.
The new scenario I think is that as a Sole Prop. and LLC you can use the pass through process. But as you said a question for the CPA-Accountant. As of early dec. ours couldn’t answer any questions because he was waiting to see what was passed. Now they are all scrambling to dive into the weeds-details.
Maybe some of the accountant type members here or maybe Mark Tewes will chime in with the real details.-
The pass through isn’t what I’m pointing out. That’s common.
What’s interesting is that “pass through” income can deduct 20% of business income.
If true, this is huge. I wonder if this is after deductions, or before deductions.As I posted above:
Under the new tax bill, pass-through business owners can deduct 20% of their business income, which will lower their tax liability. So, for example, if your online business made a profit of $50,000, you would only pay taxes on $40,000, and your personal tax rate would apply to that -not the corporate rate.
-
-
Just a follow up thought. Maybe contacting Mark Tewes for a follow up interview with his take on the new tax laws and how it may relate to the e-commerce sellers.
Also don’t forget, some politicians are trying hard to push for Sales Tax to be collected on every sale outside one’s own state and then submitted to those states we had sales in, their share of the taxes. We signed a petition on this not too long ago and got several replies back from our Georgia Congressmen and saying they are working on stopping it but I think they said it may still be “in a committee” thing.
mike at mdcg in atl.
-
This link is supposed to explain it, but I still don’t understand it:
After the 20% deduction, would you still get the traditional standard deduction as well? Or would this replace it? Standard deduction for 2018 is 12k for individuals, 24k for married, filing jointly.
-
-
-
Here is how I read it. As a small business, our taxable business income that we will pay on our individual tax returns will now be reduced by 20%.
Best advice I can give you as an accountant? Have a professional tax preparer do your taxes, or at least use TurboTax (which is what I do). When I have questions that TurboTax can’t answer, I read the tax rules myself…
-
-
Yes I read it that way for our simple, low overhead ebay business style – knock 20% off of your net business income as it comes through to your personal income taxes. It get complicated for businesses with major equipment, lots of income etc. It’s really not that complicated though because the tax laws for a complicated high expense business was already way more complicated.
In my case it really doesn’t matter. The child tax credits alone wipe out my federal tax bill for my day job and ebay business. These law changes encourage me to grow my business faster while maintaining my day job since the tax implications are greatly reduced.
-
-
Interesting ideas here! May I ask a couple of clarifying questions?
– “These law changes encourage me to grow my business faster while maintaining my day job since the tax implications are greatly reduced.” – Can you explain what you mean? Do you mean that you will have to pay less in taxes on your ebay business (assuming you are an LLC) so thus you are motivated to keep expanding your ebay sales?
– “The child tax credits alone wipe out my federal tax bill for my day job and ebay business.” – Do you mean that because you have kids, the increased child tax credits offset any federal income taxes you would have owed? (I see it is now $2,000 per qualifying child — doubled. How many kids do you have?)
– You say you will maintain your day job. Does the tax bill have any impact on your decision to keep the day job?THANKS! Your comments sound eminently reasonable but I wanted to make sure I understand what you mean.
-
If I make so much on top of my day job, then at some point my extra income will push me into a higher tax bracket. With the 20% deduction on business income, I can effectively increase my business income 20% without any personal income tax implications. The higher tax bracket is really more of a “mind game”. Yes I understand that only the amount in the next tax bracket is taxed at the higher rate. It’s the old “If I make more I gotta pay more so maybe I should just not make more to avoid that small penalty” faulty logic argument. It’s an illogical internal reasoning yes, but that kind of thinking affects most people in one aspect of their lives or another.
As for kids, I have 4, so $8000 in tax credits. Personally I think $2k credit per child is excessively too much, but I’m not gonna turn it down!
Does this bill affect my decision to stay at my job? I’m not really sure. It does inspire me to expand my business, which in turn could lead to me eventually deciding to go full time and abandon my day job. I’ve already commited to the idea that if my day job ends I will immediately switch to full time ebay. That’s what I’ve been building to for 2.5 years. I’m definitely not at the level where I think I could earn enough on ebay to simply walk away though. I am quite comfortable now having my HSA contribution set to the legal maximum since I will be paying several thousand less in Federal Tax.
-
-
-
- You must be logged in to reply to this topic.