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How LLCs Can Benefit from Tax Reform

Posted on in Business Law

Elgin business law attorney LLC tax reformThe Tax Cuts and Jobs Act of 2017, which was passed by Congress and signed into law by President Trump last December, made a wide variety of sweeping changes to the United States Tax Code. In addition to reducing the corporate tax rate, the tax reform law implemented some changes which can benefit small business owners, and people should be aware of how they can take advantage of these changes and minimize their tax burden by establishing themselves as a LLC.

Pass-Through Entities and LLCs

One significant change that the Tax Cuts and Jobs Act made was in how pass-through entities are treated. With pass-through businesses, such as sole proprietorships or LLCs, profits are taxed at the owner’s individual tax rate rather than the corporate tax rate. Under the tax reform law, owners of pass-through entities can now deduct 20% of their qualified business income. 

The pass-through deduction is a “below the line” deduction which is taken from a taxpayer’s adjusted gross income (AGI). This means that it will apply to a person’s taxable income after other deductions have been made, such as retirement plan contributions, health insurance premiums, alimony, and interest on student loans.

All pass-through businesses are eligible for the qualified business income deduction, but “service businesses,” such as healthcare providers, lawyers, accountants, performing artists, athletic coaches, or consultants, are subject to income level restrictions. In order to qualify for the pass-through deduction, owners of these types of businesses must earn a taxable income of less than $157,500 as a single person or $315,000 as a married couple. People whose income exceeds this threshold will be able to deduct either 20% of their business income or 50% of the total wages paid to their employees, whichever is less. 

Business owners who wish to take advantage of this new deduction may want to form a LLC, which can also provide them with important legal and financial protections. A LLC can consist of one person, and it can typically be formed by filing articles of organization in the state where the business is located.

Contact a Kane County Business Formation Lawyer

If you own a small business or sole proprietorship or work as an independent contractor, you may wish to establish a LLC that will allow you to take advantage of the deductions created by the Tax Cuts and Jobs Act. At Ariano Hardy Ritt Nyuli Richmond Lytle & Goettel P.C., we can help you understand your options for forming a business entity and work with you to ensure that you meet your legal requirements and file the correct paperwork. To schedule a free consultation with a St. Charles business attorney, call our office at 847-695-2400 today.





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