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Should everyone be thinking of becoming a pass through business? Person Inc. works for Big Business Inc. Everybody pays 20% tax and we are all happy.
Should everyone be thinking of becoming a pass through business? Person Inc. works for Big Business Inc. Everybody pays 20% tax and we are all happy.
I don’t think certain benefits like healthcare and 401(k) accounts can be conferred that way if you’re W-2, but if you’re 1099 I see absolutely no reason not to.
If you're a software developer operating either as a sole proprietorship or as an S corporation, I don't think you'll get the deduction. (If you have an LLC, that doesn't mean anything to the IRS; it's treated either as a "disregarded entity", i.e. a sole proprietorship, or as an S or C corp if you've taken that election.)
See Steve's comment on the article from 12/19 at 2:48 PM, replying to someone asking whether developers and other IT professionals would get this break:
> The Sec. 199A statute references another older chunk of tax law, Sec 1202(e)(3)(A). It says this:
> “…any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees…”
> So computer/IT consulting pretty clearly fits within the “consulting” category.
> Also, if you’re a one person business, it seems pretty tricky to argue against the position that the principal asset of the business is the reputation or skill of the 1 employee doing the work.
I would appreciate correction if I'm misunderstanding this, as I certainly like tax deductions!
One of the worst things about the current tax code (and soon-to-be new tax law) is the cost of compliance. You can argue about high tax or low tax and who should pay more than whom, but cost and time to comply does not create any value and is an artificial way that we make our country less competitive. This article is a clear example of that, laying out 10 different things you need to know with complicated formulas f…
I've often wished a test city/state would be allowed to just do a flat tax and completely remove all tax code and see what happens.
Obviously the convolutedness is a barrier to entry to small startups and a unfair advantage for established market entities.
Also I'd love to see an experiment on a zero tax law that basically amounted to no taxes unless the business/person earned a net profit of something deemed reasonable (say 30-50k in a modern society).
Why our societies constantly try to suffocate individuals trying to innovate and create value for his fellow members of society is beyond me.
Since it's a pass-through, it seems like taxable income might be roughly the same either way, so maybe it doesn't impact the size of the deduction all that much. Has anyone thought through this?
Thanks for posting this, I have been looking for just such a summary. I think I will be a significant beneficiary of this provision (as I currently understand it, anyway), but I agree with other commenters that I wish we could just make things simpler and more fair. Over the last 10 years I have had experience with small business taxes, small business retirement plans, and various estate-tax avoidance schemes. The ta…
But if I have to shut down while my competitors stay open just because they hired a better CPA? Especially as a small business? That's a problem for me. A much bigger problem than the tax rate being 22% instead of 21%.
Should everyone be thinking of becoming a pass through business? Person Inc. works for Big Business Inc. Everybody pays 20% tax and we are all happy.
If other people or real estate work to generate the income, go for it!
I'm no expert, but from what I've seen, many people who are reading this should not get their hopes up. If you're a software developer operating either as a sole proprietorship or as an S corporation, I don't think you'll get the deduction. (If you have an LLC, that doesn't mean anything to the IRS; it's treated either as a "disregarded entity", i.e. a sole proprietorship, or as an S or C corp if you've taken that el…
What if you're a one-person business but you're a reseller or a consignment shop like most mom-and-pop stores? That takes very little skill or reputation.
Not trying to argue, that's an actual legitimate question I have.
I'm no expert, but from what I've seen, many people who are reading this should not get their hopes up. If you're a software developer operating either as a sole proprietorship or as an S corporation, I don't think you'll get the deduction. (If you have an LLC, that doesn't mean anything to the IRS; it's treated either as a "disregarded entity", i.e. a sole proprietorship, or as an S or C corp if you've taken that el…
But I've always read about games you could play, like buying the office building you operate in and then charging your software business an exorbitant amount of rent. It seems like that's a lot more overt than just a "gray area" though.