Small-Business Owners
One of the hallmarks of the TCJA is the changes that will affect many small-business owners. Among the myriad changes is a flat tax rate of 21 percent for corporations and a reduction in the amount of qualified business income that is taxed for many flow-through businesses (S-corporations, certain LLCs, partnerships, sole proprietorships). In addition, the expensing/depreciation options for qualified business property is now more generous.
There seems to be a fair amount of confusion as to whether small business owners should switch their business entity type or modify their current compensation structure in order to take advantage of the changes. Before making any conversions, business owners should consult with a competent tax professional specializing in business structure and tax law. The cost and effort of altering and maintaining a different business type may not be worth the benefits.
It’s important to note that “professional services” businesses have their own set of restrictions and phase-outs that need to be considered.
One Last Item
Alimony paid under a divorce or separation agreement signed after 12/31/18 will no longer be tax-deductible to the payor and will not be taxable income to the recipient. This is a significant development that should be emphasized to any client currently in the process of a divorce, as it should be a consideration during the negotiation process.
Keep in mind, this is only a brief summary of some of the changes brought about by the TCJA. If your client has a complicated tax return, they should also have a discussion with their accountant as there may be additional items that could have an effect on your client’s personal situation. As financial professionals, a large part of our value is our ability to help make complex topics more understandable and relevant to our clients. Providing them with an informed update on how the TCJA may affect their financial future is a valuable way to achieve this goal.
Kelly LaVigne is vice president of advanced markets at Allianz Life.