2018 Tax Changes: How will you be affected?

The new Tax Law is anything but simple. The IRS will take months to figure it out, while tax professionals and accounting software will be on the sidelines waiting for clear rules and regulations. Affect on C-Corporations: It is clear that C-corporations have a tax reduction from 35% to 21%. Affect on other Business Entities: In theory, pass-thru small businesses (sole proprietors, LLCs, S-Corps and Partnerships) will be able to deduct 20% of their income from federal income tax.

However, business owners providing services lose that deduction after their income has reached $315,000 ($157,500 single). Whether you provide services is vague and has to be worked out by the IRS. Also, just to add some complications to the mix, S-Corps must deduct a "reasonable salary" from their income before deducting 20%, reducing their deduction significantly. The IRS may require a similar deduction for LLCs, partnerships and/or sole proprietors. We won't know this for months. There are also many qualifications to getting or even calculating the 20%. Just beginning to read them makes a person's head spin. Because of the complications, doing taxes yourself has become less realistic than ever before. Most business owners will need tax advisors, and the tax advisors will need software systems to figure it all out. The 20% deduction does not appear to apply to social security self-employment tax. Affect on Individuals/Employees Individuals are losing some deductions and tax brackets are being moved around a bit. Below is a link for the new withholding charts. For all employees, the W-4 must be completely revised to reflect the new tax codes. The IRS is not expected to have a new W-4 form until 2019. Resources for you Here are the new, official withholding charts for 2018. Employers must use them by February 15, 2018. Here is a calculator you can use showing the affect of the new tax law on your situation. Here are details about the 20% deduction. Please note that the last two resources are not issued by the IRS and may contain errors.