Entrepreneurs in Michigan and across the U.S. face difficulties in keeping small businesses running. Challenges include filing of tax returns, and taking advantage of deductions.
The 2017 tax laws allow for certain pass-through businesses to take advantage of a 20 percent tax deduction. Unfortunately, determining which businesses can take advantage of the deduction remains unclear. There has been delays in guidance by the U.S. Treasury Department.
Guidance from U.S. Treasury and OMB officials
Even before the department provides guidance to the public, the White House’s Office of Management and Budget (OMB) will review the new regulations. The presidential administration thus will have significant input.
The treasury department states there already was submission of a small number of regulations to the OMB. This pertains to capital expenses, oversea profit taxation, and various accounting rules. It does not appear there was any formal submission of these rules, however.
Direction for pass-through businesses
The vast majority (approximately 90 percent) of U.S. businesses are pass-through entities. Typical pass-through businesses include sole proprietorships, partnerships and S-corporations. This can include family-run convenience stores or even private equity funds.
Pass-through entities are unique. The owners rather than the business pay the taxes. This is different from the way corporations pay taxes. For corporate taxes, the company itself is responsible for payment.
As matters stand, single pass-through owners earning less than $157,500, and married couples who are pass-through owners earning less than $315,000, can take advantage of the 20 percent deduction. Above these amounts, the deduction varies for “service” industries. What qualifies as a service business under the new regulations remains unclear.
What should you do?
Because questions pertaining to business taxation arise so frequently, it is essential that businesses look for appropriate tax guidance. This is where tax experienced tax attorneys can play a role. Unfortunately, other professionals attempting to provide such guidance often have no experience in such matters or are unqualified to provide legal advice.