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NOTEBOOK: Year-end bonuses could help small-business owners trim taxes


Small-business owners will definitely want to meet with their tax adviser in December to figure out how they can fully leverage the 2018 Tax Cut and Jobs Act before closing the books on 2018. That was the biggest piece of advice from Rob Poterucha, a senior accountant with McGowen, Hurst, Clark & Smith PC. I sat in on a walk-through of the new tax provisions March 28 during a “Top Five for Small Business” seminar hosted by the Greater Des Moines Partnership. 

The new law that will apply to 2018 taxes was written to encourage employers whose businesses are set up as pass-through entities — such as an S corporation — to pay more of their income as salaries to help drive economic growth. So there’s a good possibility that giving yourself or your employees a year-end bonus could actually help to lower your taxes, Poterucha said. 

Additionally, changes in the tax law may make it advantageous for small-business owners who are now organized as an S-corp to consider changing to a C-corp. Poterucha had one example showing how a C corporation that paid $340,000 in taxes on $1 million in income in 2017 would pay $210,000 on the same $1 million of income in 2018. 

Some good news for businesses that are pass-through entities: They can qualify for a 20 percent deduction of their pass-through income before it’s taxed at the owner’s individual tax rate — provided they meet a three-part qualifying test that gets into some wonky IRS math gyrations. The really murky part is that it doesn’t apply to “service corporations” unless the owners’ taxable income is below $315,000, and the IRS rules for what are considered service corporations still need a lot of clarification, Poterucha said. 

What do business owners think? Bryan Friedman, co-owner of Newton-based real estate developer Goldfinch Growth, said afterward that he’s hopeful the tax provisions will spur additional real estate investment activity. “As we look for working with individual investors, real estate does have a lot of advantages through some of these pass-through provisions,” he said. “I think it makes our industry more attractive for investors.

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