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Archive for July 23rd, 2018

The Tax Cuts and Jobs Act — signed into law on December 22, 2017 — gave birth to a brand new provision: Section 199A, which permits owners of sole proprietorships, S corporations, or partnerships to deduct up to 20% of the income earned by the business. The motivation for the new deduction is clear: to allow these business owners to keep pace with the significant corporate tax cut offered by the Act.

Income earned by a C corporation is subject to double taxation; first at the entity level, and then a second time at the shareholder level when the corporation distributes its income as a dividend. As part of the Act, the entity-level tax imposed on C corporations was reduced from a top rate of 35% to a flat rate of 21%. While the Act retained the top rate on dividend income of 20%, the dramatic decrease in the corporate-level tax lowered the top combined federal rate on income earned by a C corporation from 48% to 36.8%.

Contrary to C corporations, income earned by a sole proprietorship, S corporation or partnership is subject to only a single level of tax. There is generally no tax at the entity level; instead, the owner of the business reports his or her share of the income of the business directly on his or her tax return, and pays the corresponding tax at ordinary rates.

Continue reading on, Forbes.com

Authored by Tony Nitti, Withum Partner and writer for Forbes.com.

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