The tax reform law now allows for a 20 percent deduction on business income for certain types of businesses.
Guam – The small business community may be seeing a relief with the newly passed tax overhaul law signed by President Donald Trump.
Speaking at a meeting for the Rotary Club of Tumon Bay, Deloitte and Touche Senior Tax Consultant Joe Arnett talked about the new 20 percent deduction for pass through entities.
Depending on how the business or entity is set up, the company can take a 20 percent deduction on their business income. This includes LLCs, partnerships, S corporations, and certain small business trusts.
There are some limitations, however, as Arnett points out that service-related businesses are not eligible for this deduction, such as those in health insurance, accounting, architectural, science, performing arts, consulting, athletics and others.
This 20 percent deduction is different from the corporate tax rate of 21 percent which is another change Arnett says businesses will need to assess.
“You need to think about the type of business organization you’re operating now because combined with the corporate tax rate reduction to 21 percent, based upon you immediate and future plans, you need to decide whether you’re in the right structure or not. And you have, if you’re a regular C corporation, you have until Feb. 15 to elect to be an S corporation,” said Arnett.
Arnett cautions, however, that there are still a number of ambiguities within the new tax law that the Treasury Department has yet to address.