Tax Planning due to new tax law changes
I recently met with two different small business clients and we made some changes that will allow them to save several thousand dollars per year in Federal income taxes. This is possible for both of these Indiana businesses due to the large changes to the tax code the Republicans made in December of 2017.
The first business is a sole proprietorship located in Fort Wayne. Sole proprietors should not be paying the owner wages and the owner should not receive a W-2. This is especially true now that the new tax law allows most business owners (90% or more of business owners) to pay tax on 80% of their profits instead of 100% of their profits. By no longer paying the owner wages the profits of this company will increase significantly and the owner will only pay tax on 80% of the profits.
The second business is a computer consulting company located north west of Fort Wayne. This company is a sub chapter S corporation and the owner had been paying himself entirely through wages and each year the company had a small profit or a small loss. This business significantly lowered the wages paid to the owner for 2018 and this will significantly increase the profits of the company. This business will be one of the 90% plus of business owners that can pay taxes on 80% of its profits under the new law. This business owner will save nine thousand dollars per year in Federal income taxes under the new tax law just by lowering the wages he pays himself each year.
If you have questions about how the new tax laws will effect you please give me a call today at 260-407-5000.
Mike Sylvester, CPA/ABV, MBA