Question

The revised text of the Tax Cuts and Jobs Act (TCJA) of 2017 provides some support for sole-proprietorships, partnerships and S-corporations, but yet has eliminated certain miscellaneous deductions. Are sole proprietorships, partnerships and S-corporations truly benefitting from the revisions proposed by the TCJA of 2017? (respond with detail to help understand better plz)

Answer 1

Tax Cuts and Jobs Acts was signed on 22nd Dec 2017 into law. Here are the few highlights of this law that affects to sole proprietor, partnership, small corporations-

1. Single rate as compared to multiple rates-

There was multiple rate @ 15%,25%,34%,35% but now we have flat rate i,e 21% and for personal service corporation earlier rate was 35% now it is also reduced.

2. No Corporate Alternate Minimum Tax-

Earlier there was 20% AMT(if annual gross receipt<7.5M$ for 3 years then exempt). Now it is abolished.

3.New Deduction-

Earlier income earned by Sole Proprietor, Partnership Firms, S-Corporations was transferred in the name of owners and taxed at owner level rates.

Now new deduction 20% of  QBI(Qualified Business Income) is allowed with some limitations.

4. Depriciation and asset expensing liberlization

Sec 179 deduction limit increased to $1 Milllion(earlier it was 510000$) and property also include depreciable tangible property used to furnish lodging and expenditure made for roofs, fire protection system, alarm system etc.

Depriciation allowed for porperty placed between sept 28,2017 to Dec 31,2022 is allowed 100% depreciation deduction(earlier it was 50%)

5. Business can use cash method more and avoid inventory record keeping hassles -

Eligible businesses are excused from the chore of doing inventory accounting for tax purposes.

6. Limit on Business interest deduction-

corporate and non corporate businesses generally cannot deduct interest expense in excess of 30% of adjusted taxable income starting with tax years beginning after Dec. 31, 2017. For S corporations, partnerships, and LLCs that are treated as partnerships for tax purposes, this limitation is applied at the entity level rather than at the owner level.