The Tax Cut and Jobs Act of 2017 was meant to simplify the process of doing one’s taxes—at least that was the promise of President Trump. While the tax cuts that Trump pledged to sign into law did finally arrive late last year, simplicity is not a term that neatly summarizes the piece of legislation, according to Nitti (2017), Forbes contributor. This paper will discuss how Nitti (2017) explains the new 20% qualified business income deduction, showing there is more to it than meets the eye. The first thing needed to know about the new deduction is that defining one’s business from the outset is important. One has four basic choices to choose from: C corporation, sole proprietorship, S corporation, and partnership. C corporation owners are doubly taxed—first, when income is earned at the business level, and under previous law, the tax rate stood at 35%. Dividends to shareholders, once paid, when then taxed—the second tax—and that rate stood at 23.8%. The other three types of business—sole proprietorship, S corporation and partnership—are different in that they are taxed once, not twice. A sole proprietor, for example, reports income on a schedule C of one’s individual return. For an S corp or a partnership, the income of the business is distributed to the businesses owners, who then...
In all three cases, the business owner pays taxes on the income at rates that can rise as high as 40.8% under the old law.References
Nitti, T. (2017). Tax geek Tuesday: Making sense of the new ‘20% qualified business income deduction’. Retrieved from https://www.forbes.com/sites/anthonynitti/2017/12/26/tax-geek-tuesday-making-sense-of-the-new-20-qualified-business-income-deduction/#6a8b22f744fd
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