New Law Gives Eligible Pass-Through Businesses a Special Tax Break

February 19, 2018
Pass-Through Businesses

A new tax break has been created for pass-though businesses.

Federal income tax rates for C corporations have been reduced to a flat 21%, starting in 2018 under the Tax Cuts and Jobs Act (TCJA). But what about pass-through businesses?

Congress devised a special tax break for pass-through businesses to help achieve parity between the reduced corporate income tax rate and the tax rates for business income that pass through to owners of sole proprietorships, partnerships, S corporations and limited liability companies (LLCs), which are treated as sole proprietorships or partnerships for tax purposes.

But not every pass-through entity is eligible for the break — and it isn’t always 20%. Here’s an overview of how much this deduction can amount to and which types of income count as qualified business income (QBI) under the new tax law. Read more