2018 Small Business Tax Changes Under the Tax Cuts and Jobs Act (TCJA)

In December 2017, Congress passed a major tax reform bill known as the Tax Cuts and Jobs Act, or TCJA. The new tax law makes many changes to the tax code, some of which impact individual taxpayers, while others primarily affect businesses. If you currently own a small business – or have plans to in the near future – it is critical to understand how these tax law changes could affect your company, regardless of whether the entity is a C corporation or pass-through entity. Toward that end, the small business accountants of Cook CPA Group have prepared this short summary discussing some of the TCJA’s most important details for business owners, such as new tax rates for C corporations and individuals, new tax breaks for businesses, and some former tax breaks that have been eliminated by the TCJA. If you need assistance with business tax preparation under the new federal laws, contact Cook CPA Group for a free consultation today.

What is the 2018 Corporate Tax Rate?

There are two types of corporations in the United States: C corporations, which can have more than 100 shareholders, and S corporations, which are restricted to 100 shareholders. Along with many other types of business entities – including limited liability companies (LLCs), partnerships, and sole proprietorships – S corporations are considered pass-through entities, because, in contrast to C corporations, income “passes through” the businesses to the owners’ tax returns. In comparison, a C corporation is subject to “double-taxation,” meaning income is taxed on both a personal and a corporate level.

C corporations and S corporations, along with other pass-through entities, are subject to different tax rates – some of which changed substantially under the TCJA. Our Roseville CPAs discuss the new corporate tax rates for C corporations below, along with an overview of the new tax rates that affect pass-through entities like S corporations, LLCs, and partnerships.

C Corporation Tax Rates 2018

Before the TCJA, tax rates for C corporations could range from 15% to 35%, depending on the amount of taxable income involved. For example, there was formerly a pre-TCJA corporate tax rate of 15% on the first $50,000. The TCJA substitutes these graduated rates with a single, flat corporate tax rate, which is 21%. Likewise, the prior personal service corporation rate was reduced from 35% to 21%. Unlike various other provisions of the TCJA, many of which apply through 2025, this decrease is permanent.

2018 Tax Rates for S Corporations and Other Pass-Through Entities

To reiterate, S corporations are not taxed on business income due to their status as pass-through entities. However, individual owners are subject to taxation, meaning business owners should look to the new individual income tax brackets and rates, which were also changed under the TCJA. While there are still seven brackets, the rates were generally lowered under the new tax laws, as follows:

1. 10% – Up to $9,525
2. 12% – $9,525 to $38,700
3. 22% – $38,700 to $82,500
4. 24% – $82,500 to $157,500
5. 32% – $157,500 to $200,000
6. 35% – $200,000 to $500,000
7. 37% – $500,000 and higher

For additional context, here is how these figures compare to individual income tax brackets and rates before the TCJA:

1. 10% – Up to $9,525
2. 15% – $9,525 to $38,700
3. 25% – $38,700 to $93,700
4. 28% – $93,700 to $195,450
5. 33% – $195,450 to $424,950
6. 35% – $424,950 to $426,700
7. 39.6% – $426,700 and higher

Note that these rates apply specifically to single filers.

Small Business Tax Deductions 2018

The TCJA both creates and removes certain tax breaks for business owners. A few key examples are highlighted below.

What Tax Deductions Are Eliminated for 2018?

The TCJA limits, and in some cases completely eliminates, various tax deductions for businesses, including the following:

• The Section 199 deduction, also called the “domestic manufacturing deduction,” will be eliminated.
• There will be new restrictions on deducting net operating losses.
• There will be new restrictions on, or eliminations of, various employee fringe benefit deductions, such as deductions that are related to transportation and meals for employees.

New 2018 Pass-Through Deduction

The TCJA introduced a new qualified business income deduction, also called the “Section 199A deduction,” which is expected to remain in effect through 2025. Under this provision of the new tax bill, eligible owners of pass-through entities, including S corporations, certain partnerships, LLCs, and sole proprietorships, may be able to deduct as much as 20% of their qualified business income from their taxable income. That could translate to significant savings for small business owners.

California Small Business Accountants for Corporations and Pass-Through Entities

Correctly filing your business taxes is seldom an easy task – and with the host of sweeping new tax changes brought by the TCJA, 2019 is bound to be an especially challenging year for business owners and corporations. If you own a small business in California, or are planning to start a business in the foreseeable future, make sure you receive detailed and trustworthy guidance on tax planning and compliance from the California business accountants of Cook CPA Group. We work with S and C corporations, sole proprietorships, LLCs, and all types of business partnerships in the Roseville and Sacramento regions. To set up a free consultation about the business tax, accounting, and bookkeeping services we can provide for your company, contact us online, or call Cook CPA Group at (916) 432-2218 today.