34 THE QUEENS COURIER • DECEMBER 6, 2018 FOR BREAKING NEWS VISIT WWW.QNS.COM
TAX TIPS
Tax Reforms Impact
on Business Entities:
C-Corps, Pass
Throughs
BY JOHN SAVIGNANO, CPA
Prior to tax reform, the C-Corporation tax rates ranged from 15 to 35 percent. Under the
new law, there is a 21% flat rate. Also, under the new law, there is this new deduction known
as the Qualified Business Income deduction that is available for Pass-Through Businesses.
Taxation Of A Business Entity
An entity structured as a C-corporation, in this case the income generated from the
business may be taxed twice. For example, the corporation gets taxed at the corporate level
upon earning a profit, then after the corporation makes a distribution to the shareholders, the
shareholders also pay taxes on their individual tax returns. This concept is known as doubletaxation.
Under the new law, all the C-corporations will pay a 21% tax on their corporate
profits.
The second way businesses are taxed is that instead of the tax being paid at the business
level and then again at the individual level, the profits and losses pass through and get taxed
at the individual level only. This is especially significant now since the individual rates are set
to expire on December 31, 2025, but the 21% rate for C-corporation is permanent.
“Qualified Business Income” Deduction For Pass-Through Businesses
Under the new code, there is a special provision which allows the owners of pass-through
entities to benefit from additional tax breaks that are afforded to pass-through entities.
In essence, what the new law says is that if you have a pass-through entity, you may
generally receive a 20% deduction on the Qualified Business Income (QBI). For pass-through
entities, the portion of the profits that the business owner is entitled to after he receives a
reasonable compensation for his services is deemed as qualified business income. For
example, you may consider the portion of the income that comes in the form of W-2s,
meaning wages, and the portion of the profits that qualify as business income, such as in the
form of K-1. The portion of the income that represents the wages does not fall within the
realm of QBI; whereas the portion of the business income that is in the form of K-1 may fall
within the realm of the QBI.
QBI Requirements
In order to qualify for the QBI discount and to determine the extent to which the QBI
deduction will save the taxpayer on the discount, we must first determine the nature of the
underlying business. There are two categories of businesses that qualify for this discount;
specified service businesses and all other businesses that are not classified as specific service
businesses.
What Is A Specified Service Business
A specified service business is any business – involving performance of the services in the
fields of health, law, accounting, actuarial science, performing arts, consulting, athletics,
financial services, brokerage services – or any trade or service where the main asset of the
business is the reputation or skill of one or more of its employees. Note, however, that
architects and engineers are exempt from this category.
The Three-Tier System
For married couples who file their taxes jointly, to fall within the first Tier, the threshold for
the married couple’s total taxable income may not exceed $315,000; Tier 2 is between
$315,001 and $414,000; Tier 3 is any amount that is in excess of $415,000.
For single filers to fall within the first Tier, the threshold for the single filer’s total taxable
income may not exceed $157,500; Tier 2 is between $157,501 and $207,500; Tier 3 is any
amount that is in excess of $415,000.
How Do You Qualify for the QBI Deduction?
If your total taxable income falls in Tier 1, regardless of whether you are a specified service
business or not, you may receive a deduction. If your business falls in Tier 2, the amount of
the deduction you get is generally reduced. If you are in Tier 3, depending on whether you are
a specified service business or not, your deduction is either limited or you don’t get a
deduction at all.
How Does The QBI Deduction Apply?
Assuming that the taxpayer qualifies for the discount and he falls within Tier 1, then the
20% discount would apply on the portion of the business income. This means that the
taxpayer who earns $100,000 on their business income may only pay tax on the $80,000 of
such profits. If we assume that the taxpayer falls within the 24% tax bracket, then the taxpayer
would pay the 24% rate on the $80,000, not the $100,000, As such, instead of paying $24,000,
the taxpayer would now pay $19,200 on the portion of the business income.
John Savignano is a partner with Savignano Accountants & Advisors located at 47-46
Vernon Blvd., Second Floor, in Long Island City. If you have any questions or require
additional information, please call John at 718-707-0955.
No W-2 required to apply.
Nov. 19 - Jan. 11
Hernan Barona, E.A
hernan@savignano-cpa.com
www.savignano-cpa.com
ObtainMyRefund.com
41-18 Crescent St., Long Island City, NY 11101
T: 718-707-0295 • F: 718-707-0299
E: hernan@savignano-cpa.com
www.savignano-cpa.com
47-46 Vernon Blvd Second Floor
Long Island City, NY 11101
T: 718-707-0955 • F: 718-707-0959
*If approved for an H&R Block Emerald Advance®, your credit limit could be between
$350-$1000.
H&R Block Emerald Advance® line of credit and H&R Block Emerald Savings® offered through Axos Bank™, Member FDIC. H&R Block
Emerald Prepaid Mastercard® issued by Axos Bank pursuant to a license by Mastercard International Incorporated. All products subject
to ID verification. Line of credit subject to credit and underwriting approval. Fees apply. Products offered only at participating offices.
Promotional period 11/15/2018 - 1/11/2019. Emerald Financial Services, LLC is a registered agent of Axos Bank. Mastercard is a registered
trademark, and the circles design is a trademark of Mastercard International Incorporated. Emerald Advance™ line of credit is a tax
refund-related credit product. Emerald Card® is a tax refund-related deposit product. OBTP# B13696 ©2018 HRB Tax Group, Inc.
SAVIGNANO
accountants & advisors
ACCOUNTING AND TAX SERVICES THAT BENEFIT YOUR PERSONAL
JOHN SAVIGNANO
CPA, CGMA
AND BUSINESS NEEDS
• Multiple LIC Office Location • One Stop Shopping
• Over 25 Years of Professional Experience
• Special Offers and Promotions Available
• All Services Guaranteed
OUR SERVICES INCLUDE:
For Individuals…
• Income Tax
• Tax Planning
• Audit Defense
• Bookkeeping
• Insurance
• Financials
• Estates/Trusts
• Net Worth Statements
• Budgeting
• Offer-In-Compromise
For Businesses…
• Income Tax
• Sales Tax
• Payroll Tax
• Retirement
• Accounting
• Investments
• Audit Defense
• Tax Planning
• Valuations
• Formation/Structures
www.LIC-CPA.com
www.savignano-cpa.com
bestaccountantinlic.com
ObtainMyRefund.com
Our Certified Public Accountants
are here to serve clients in a variety of industries. Whether you are looking for tax preparation
services, risk management advice, or assistance with a retirement plan, the team at
SAVIGNANO accountants & advisors is here to help.
47-46 Vernon Blvd., 2nd Fl. LIC, NY 11101
718.707.0955 (F) 718.707.0959
41-18 Crescent St. LIC, NY 11101
718.707.0295 (F) 718.707.0299
PLEASE CALL OR VISIT US FOR FREE CONSULTATION
/www.savignano-cpa.com
/www.savignano-cpa.com
link
link
/www.LIC-CPA.com
/www.savignano-cpa.com
