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Tax Regulations
New 2018 tax changes – 20% Pass-Through Entity Deduction
The Tax Cuts and Jobs Act, signed into law on December 22, 2017, created a new provision for the owner of certain business entities. The 20% Pass-Through Entities deduction (Sec. 199A deduction) allows owners of Pass-Through Entities to deduct up to 20% of the income earned by the business.
Pass-Through Entities: Sole Proprietorships, S Corporations, Partnerships, or LLCs.
Limitations on 20% Pass-Through Entity Deduction
However, If your business is a specified service trade or business such as health, law, consulting, and financial services and your taxable income on your personal tax return exceeds certain amounts, you may not have a full 20% deduction. Please see the below chart for ranges of the taxable income and their deduction limits.
Tax Filing Status
Full 20% deduction
Partial deduction
No deduction
Married Couples
Less then $315,000
$315,000 – $415,000
Over $415,000
Other Taxpayers
Less than $157,500
$157,500 – $207,500
Over $207,500
How to maximize your Tax Savings under this provision?
If you are in the field of health and think you may not get a full deduction, or no deduction may be allowed to you, please call us at 410-719-1000. We can provide a thorough review on your business and personal tax situation and build the optimal tax saving strategies customized for you by offering:
W-2 Review
K-1 Review
Advisory Service on Retirement Plan
Contact Today!
Albert Kim, CPA
Phone: 410-719-1000
Email: akim@ak2cpa.com
AK & Associates, PA is a professional accounting firm serving the Greater Baltimore Washington Metropolitan community for over 25 years. With our team of CPAs, we provide tailored accounting services and business expertise to small and medium sized businesses. Supporting retail to wholesale and professional services alike, we collaborate with clients to maximize financial success and balance personal goals.
New 2018 tax changes – 20% Pass-Through Entity Deduction
Example*: John and Jennifer file a joint return on which they report taxable income of $415,000. John is a medical doctor and has an income of $300,000 from his business which is an S-Corporation.
Without tax planning
With tax planning
Income from S-Corporation
$300,000
$200,000
Taxable income
$415,000
$315,000
Amount of 20% pass-through entity deduction
$0
$40,000
Federal tax savings
0
$9,600
*Disclaimer: This example is provided only to illustrate a tax saving effect with the application of the 20% Pass-Through Entity Deduction. Tax saving amount in the above table is not final and does not reflect other factors that may change the tax calculation.