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Maximizing Your After-Tax Profit on Your 2018 ReturnThank you so much, and I just wanted to mention that I am not going to be giving tax advice today. This is informational so do not take this as accounting, legal, or tax advice. I do want to apprise you of a lot of new developments that can favorably impact your return which you are going to be filing in this tax season. You can find out more about me in your slide deck when you receive it. Let's begin the program with a starting point for saving taxes. You will need to know whether 2018 was a good year or a bad year for your business. It was pretty good in 2018 but it does not necessarily mean that every business was profitable or successful. But by now, you should have a pretty good idea of this and the answer will dictate the type of actions you can take now to maximize your tax savings. >> I have a very ambitious program today and a lot to cover. I will explain what you will see new on the 2018 return. I will discuss the tax elections that can be made to favorably impact the taxes that you will pay. I will tell you what you can still do, the year is over but there are still some things you can do to lower your your tax bill. And I will help you consider whether to file early or if it is advisable to obtain a filing extension for your 2018 return. And I am going to cover some questions that you might want to ask your CPA or other tax advisor if you are a business owner listening now interview of the fact that most small business owners do use tax professionals and there are so many new rules that apply to 2018 and going forward that we will cover some of the questions that may be helpful for you to discuss. Let's begin by reviewing some of the new rules for 2018 that you'll see on your return. And some of this depends on your type of business entity. It's whether you are a regular C corporation or a pass-through or a partnership, limited liability company, S corporation, sole proprietorship. Some of the rules you will see our unique to each type of entity. Many of the rules apply to all businesses. So let's run through them. And we will start with the changes for the C corporations , regular corporations. So if your business is organized as such, the biggest change that you will see is the flat 21% tax rate. It does not matter whether you are a large, multinational, C corporation or a little corner store organized as a C Corporation. You pay the same tax rate and it's the flat rate. The alternative minimum tax has also been eliminated because there has always been a small corporation exception. I will not discuss this further. This is the biggie for most C corporations. The important thing to note here about the flat tax is that any fiscal year C Corporation will have a blended rate under 2018 return. In other words, the former graduated corporate rates will apply to a portion of prior to January 1, 2018 with the flat tax rate for a portion of the year. This starts January 1, 2018. Another big change for corporations is the reduction in the dividends received deduction. This change applies whether a corporation applies when a C Corporation hold stock in another regular corporation. I will not run through the numbers but this is about what the percentages for the dividends received deduction but it is another change. If your business is a pass-through as are about 95% of all U.S. businesses according to the most recent statistics from the U.S. Census, then you are in for some really big changes. The biggest one which you may have heard about is the new 20% qualified business income deduction. I could spend a whole program just on this. I have done so. But I have to be brief here because we have so much to cover. So let me try to hit some of the high points. The deduction is a personal deduction, not a business reduction. It does not reduce your business income or impact your self-appointed tax. It is actually a subtraction to figure taxable income on your personal tax return just like the standard deduction or itemized deductions. The new form 1040 for 2018 has a special line dedicated to the QPI deduction. If your taxable deduction in 2018 is more , no more than $350,000 file jointly , then the deduction is simply 20% of QBI plus some other amounts I will not go into here. If your taxable income exceeds these amounts, then you have to apply a formula to figure the deduction and the formula takes into account your company's view to wages and the adjusted basis of property immediately after acquisition. That is called UB IA. If you are a specified service trader business, doctor, lawyer, athlete, consultant, then the amount of QBI and other items taken into account for the formula when the taxable income is over that amount, those items say that and it's possible if you are in a specified service trader business, if you are successful, you are not going to get any QBI deduction. This happens to be a QBI worksheet in the instructions to the form 1040 there are available now. That will apply if your taxable income is not higher than the numbers I just mentioned. If it is higher, then you have to look at worksheet in IRS publication 535. So the QBI deduction is something if you have profits. If you have losses, there is another change and it is solely for pass-throughs . limit on excess business losses, I don't want to bog down with numbers, but if total business deductions are greater than total business income and business capital gains, plus a set dollar amount, the excess is not currently deductible. Instead, the excess is treated as a net operating loss in the following year and I am going to be talking about net operating losses next. I want to point out that the dollar amount I mentioned is adjusted for inflation so there is going to be a different dollar amount in 20 -- 2019 Percocet a lot about this. There's so much involved in the deduction and I'm sure so many of you have many questions about it but it is for the pass-throughs which are the partnerships, limited liability comedies, S corporations, sole proprietorship, and independent contractors filing a sole proprietorship. Many of the text related changes for 2018 apply regardless of your entity type your so there are greater write-offs for buying qualified property. I am going to circle back to this later in the program so I am not going to go into details now. There's any limitation on deducted business interest which essentially , without going into detail, is 30% of income. Fortunately, there is a small business exception. Businesses with average annual gross receipts in the three prior years not exceeding a set dollar amount , meaning the gross receipt test, considered small businesses. But even certain larger businesses , specifically farming businesses and real estate businesses, can elect out of the limitation. I will talk about that later also. I mentioned net operating losses. Well, there were to put changes here. First, there is no longer any carryback other than for farming businesses. The use of the NOL carried forward is limited to 80% of taxable income. You may recall in the past that it has been up to a full offset, 100%, so that is a big change. Another change, the cost of taking customers and other business contacts to a ballgame or theater no longer are deductible. Entertainment costs are out. However, if you consume food or beverage at such an event, the cost of these items is still deductible as long as they are separately billed, not lavish or extravagant, and the business owner or employee is present. So hot dogs at the ballgame, you can still write off those hot dogs and beer. Another change, you're not required by federal law to pay for any family and medical leave. If you choose to do so, there is a new tax credit. This credit is only for 2018 and 2019 unless Congress decides to extend it. It could only the claim for an employee who earned less than $72,000 in the prior year meeting $72,000 in 2017. The cause of the new tax rules, there are a variety of new forms, schedules, and worksheets. And of course, if you prepare your return using software or a professional peers your return, this is essential that you know every little detail but I want to familiarize you with all of the changes just so that you can get an appreciation for the scope of the changes. The 1040 has been dramatically revised. It's not exactly a postcard as was promised because many of the items have been pushed just candles to make it shorter. For example, the deduction for self employed health insurance, coverage, retirement plans, one half of the self-appointed tax, that is on a new schedule 1. As I mentioned, there is a on the 1044 the QBI deduction. There are also new forms, one for the tax credit for paid family and medical leave. There's one for excess business losses , and the numbers are on your screen on it will not read them out now. And there is one for business interest deduction limitation. As I told you earlier, the QBI deduction has special new worksheet. >> Now let's look at some tax elections. These are made on the return. Until you file, you have time to make them. This, as I said at the start, is something that you can do in order to affect, to come out with the results that are beneficial to you depending on whether you have a business that is profitable or not. And so let me run through some of the tax elections. Whether you want to make elections depends on your overall tax picture not limited exactly to your business profits or losses, especially if you are a pass-through and you are reporting on your personal return. But let's say you want to optimize your write-off. If you are in a specified service , trade, or business and are trying to lower your taxable income in order to maximize your QBI deduction, then you want to take all the deductions you possibly can to lower your taxable income. But if you are in a loss position, you may not want to optimize deductions now. You may be hard from cleaning losses due to the excess business loss limit I just discussed and , if you do not claim them now, you may be able to do so in the future when you are more profitable. Let's get a little specific. Let me run through the elections that are applicable to having purchased certain property in 2018. There's a section 179 first year expense reduction which applies for all property totaling up to $1 million in 2018. You have to elect to use it. Of course, you have to be profitable to benefit from this write-off. If you are not profitable, you do not make this election. Then there is bonus depreciation which is another first year allowance. It applies automatically unless you elect not to use it. And if you make the election, it applies to all property within the same class. And the class is the class year used for depreciation purposes such as a five-year property, seven your property, and such. If you put a vehicle in 2018 for your business, the dollar limit on depreciation factors in bonus depreciation. In other words, you can deduct up to $80,000 of the cost. But if you elect not to use bonus depreciation for all five your property which includes vehicles, then your deduction would be capped at $10,000. If you do not use the section 179 deduction, you merely take regular depreciation for the property over its recovery period, meaning 5 years, 7 years, and so on. I should point out that these write-offs apply whether you take pay cash for the purchases or finest them in whole or in part. There's one more election to take it out. And when it comes to buying tangible items, you can elect not to capitalize them which is a technical term meeting you do not have to add them to your balance sheet. As a small business, you can opt to treat them as non-incidental materials and supplies up to $2500 per item or invoice. This means a currency deduction without of the ongoing record-keeping for depreciable items. >> For example, let's say you are a motel owner and you have 50 rooms and you buy a new ironing board for each room. You can use any of the write-offs I have mentioned or opt to use this particular one which simplifies your ongoing record-keeping. >> You may recall that I mentioned a new limitation on deducting business interest . Farming businesses and real estate businesses that are too large for the small exemption can elect out of the limitation. If they do, they can deduct all of their interest expense. But if they do, they have to use what is called the ADS every period for depreciation. Without going into detail, it just means you have to take slower depreciation over longer recovery periods. For example, the residential real estate, if you buy a multifamily home that is being rented out, the ADS recovery period is 30 years as compared with 27 and the IRS has been helpful in saying that if you make this selection and you change to the ADS recovery periods, it is not considered a change in accounting method. And so that also simplifies some filing requirements here. There are some elections when it comes to accounting method. Some you may wish to make a many of them are automatic changes so you do it when you file your return. You do not have to do it in advance. I have been talking about the gross receipts test. It has been standardized for a number of accounting method purposes. So for 2018, it is having average annual gross receipts in the three prior years not exceeding $25 million. Going forward, this dollar limit will be adjusted for inflation. For example, for 2019, it is $26 million. So you can see on your screen some of the uses of this gross receipts test and small businesses may want to make the election to change their accounting methods in certain situations. >> Here is a biggie. If your business is a partnership or a limited liability company filing a partnership return, then you may want to think ahead about potential audits . Under new rules, the IRS will audit partnership and make adjustments at the partnership level. This means that the partnership they have to pay additional taxes unless it elects to push out adjustments to partners. This new centralized audit regime which you may hear referred to as the BBA regime because it was created by the partisan budget act , it is very complicated, the point I want to make here is that small partnerships can elect out of the ABA regime . The IRS would have to audit individual partners with respect to any partnership items. The election out applies if there are 100 or fewer eligible partners and I will not go into the definition here. The point to note is that the election is made on a timely filed return. Just check the box on form 1065 and complete the new schedule B 2 entitled election out of the centralized ownership audit regime. Then you have to send a notice of election to partners within 30 days. This is again something that I think would be really good to discuss with your tax advisor. It's just because you are eligible to opt out of the BBA regime does not mean it is a good thing to do it. Also another thing is that if you are not electing out of this, you are going to have to name on the tax return something called a partnership representative. And this partnership representative has broad authority to represent the partnership in any audits and anything related to the tax return . And unlike in the past where attacks matters partner had to be a partner, the new PR , partnership representative, does not have to be a partner. But there are certain requirements on who is and is not eligible to act in this capacity. Again, another decision to make on the tax return is this. Okay. So even though the year has ended, there are still many things to do that you can, in fact, they will favorably impact your 2018 return. We have already covered tax elections. Another thing you can do is complete the making of contributions to an existing qualified retirement plan. So if you have a profit-sharing or other plan, be sure to be funded no later than the due date of your return including extensions. You get to deduct these contributions. So let's say you signed the paperwork at the end of December to have a qualified retirement plan . If you get a filing extension for your tax return, you have up until the extended duty to actually put the money in and claim a deduction on that return. If you do not yet have a qualified retirement plan, you are not out of luck. You can still set up and fund a SDP by the end of the duty of your return. Of course, you will need to be profitable in 2018 in order to do this. And you should determine whether your company can afford to make attributions to employees accounts. You cannot emit contributions to yourself and discriminate against employees. But check the rules on whether all employees must be covert, part-timers, seasonal workers, newly hired workers, again, this is something to check with your tax advisor. It is really highly advisable for businesses to consider this because retirement plans are a way not only to reduce your taxes now, to build up your retirement nest egg and to provide a really valuable benefit to employees, many of whom are concerned about their financial futures and this is a way to help them become financially secure. >> Now I want to talk about some last-minute detail which is the final installment of estimated taxes for individuals, meaning owners of pass-through entities. It is coming up generate 15, 2019. It is the last date for paying the final installment of your 2018 estimated taxes. So determine what you have paid so far and what you should pay now. There are really only two considerations. One is avoiding estimated tax penalties for underpayments. So look to see if safe harbors are useful to you. So if you pay for 2018 estimated taxes , 100% of your 2017 tax bill or if your adjusted gross income in 2017 was $150,000 or more, then 110% of your adjusted gross income , 110% of your tax bill for 2017, you will not be penalized regardless of what your ultimate tax bill for 2018 actually is. Of course, one of the challenges for many business owners is having the cash on hand to pay the taxes when they are due. So certainly paying your estimated taxes is one significant way to spread those payments for installments over the year and hopefully will not have a big lump sum that's due in April when you file your personal return. But there is another consideration. And that is you do not want to overpay your estimated taxes because then you have to wait until you file your return to get a refund and that is going to be problematic. Also, looking ahead, you are going to be making your first payment of your estimated taxes for 2019 when you file, at the same time, the same deadline, for filing your 2018 individual return. And so you really need a very good projection of what your 2018 tax bill is going to be if you want to rely on this 100%, 110% safe harbor to avoid underpayments penalties for estimated taxes. >> One of the decisions you will be making soon is whether to file by the due date or ask for a filing extension. So just to remind you a bit, if you have a pass-through on a calendar year basis, meaning and asked Corporation -- S corporation or partnership or limited liability filing a partnership return, you are talking about a mid-March filing deadline. If you are a C Corporation or if you are a sole proprietor, your business return is not due until mid April which is part of the 1040 return. But regardless of which type of entity, you can get a filing extension. And should you or should you not get a filing extension? If you expect to get a refund, you probably want to file as early as possible to get your cash back from the government. But you will need to have all required information for return preparation. And this is particularly this year, you will need to K-1 from your partnership or S corporation in order to report items that factor into figuring your QBI deduction. That's such as your QBI from the business, W-2 wages, and the UBI a I mentioned earlier. If you don't have this information, you cannot complete your return. And remember that your entity may need more time to complete its return and it may go on extension. So this is not a simple decision. And your tax advisor may suggest going on extension because certain tax matters have not yet been clarified. For example, a number of tax positions expired at the end of 2017 but could still be extended retroactively for 2018. You may remember that we have a similar situation from just last year. We did not get extender legislation until February 2018 for the 2017 tax rules that had expired at the end of 2016. So you have to watch out for this. If there is something significant, maybe a filing extension is worth a wait-and-see. I think within the next month or so, we should have a better idea of what Congress will or will not do with respect to extending this. Again, one thing to keep in mind is that the taxes are due on April 15 even if you obtain a filing extension. So be sure to pay what you think you oh to avoid or minimize any interest and penalties. >> As I mentioned earlier , about 90% of all small businesses work with tax professionals. If you are in this category, there are some questions you may want to discuss with your accountant or other tax advisor. The number one question that I am hearing from business owners is whether they should come C corporations in order to take advantage of the flat 21% tax rate on profits. Frankly, this is a very complicated matter involving federal and state taxes as well as nontax considerations. For example, being a C Corporation is helpful for a specified service, trade, or business which, because of income levels, the owners may be barred individually from claiming any QBI deduction if they are pass-throughs. The main decision to think about in making any changes in entity is that this is not a short-term solution. You really need to think long term. You are not going to go back and forth. For example, I will get to that in a minute, likely, also there are legal and accounting fees to make any changes and you may need to do some other things. Depending on what the entity change is, you may need to inform customers and clients and you will get new business card at the least. So there are costs involved here and other considerations sites just the federal tax rules that I have been going through here. But I think that this is a discussion worth having because the 21% flat tax rate is something that is permanent in the tax law. Of course Congress can always change it that is permanent meaning that it is not set to expire versus the 20% QBI deduction which is set to run only through 2025. Congress would have to extend it. That QBI deduction was created because it was thought to be a way of creating parity between the tax cut on the C Corporation versus owners of pass-throughs. Now clearly it is not parity. But it is some relief for owners of pass-throughs. But again, this is very complicated. >> Say you do want to become a regular C Corporation. Without going into detail, let me give you a little overview of what this means. If you currently are an S Corporation, you can Sibley terminate your S election. And I have seen some tax pillows reporting that some of their clients have done this in the past year. So they have switched from C, from S to C status. But doing this may prevent the business from using the cash method of accounting because of the gross receipts test. There is a special conversion that applies before December 22, 2019. Any adjustment from an accounting method change that occurs because of terminating the S election and becoming a C Corporation is taken into account over a six-year period. That is kind of the easiest thing to do. You have already incorporated under state laws so it does not require, it does not involve the state other than perhaps, if you have an S election for state income tax purposes, you may have to file something on the state level to terminate your S status on the state level as well. But if you are not currently incorporated, you can still become a C Corporation. Or the entity does not even have to incorporate. It can simply elect to be treated as an association and taxed as a corporation. And this is referred to in tax parlance as a check the box election. It is a little more, Katie than that. I do not want to get too specific about it. But and there have been various other strategies that have been floating around as to how to accomplish the end result of being taxed as a C Corporation. Again, becoming a C Corporation, how and when to do it requires considerable discussion with your business advisors. >> I talked earlier about accounting elections. Well, be sure to talk to your accountant about this. There are various elections that are now available in light of the tax cuts and jobs act changes that apply for 2018. And again, many of them are automatic changes in accounting. So it is just a matter of filing with your tax return. It is automatic but adjustments may be required and it may impact your taxes up or down. So again, a discussion is necessary. >> I know this program was focused on your 2018 return. I would be remiss if I did not talk a little about 2019. At present, there are no new tax rules. But numerous amounts have been adjusted for inflation. I kind of indicated previously, for example, with the QBI deduction, the taxable income limits for 2019 are slightly higher. So for example, $321,400 for joint filers and $160,700 for singles and heads of households is an adjustment. Another adjustment for 2019 is the section 179 deduction which, as I mentioned, four 2018 is capped at $1 million. For 2019, it is $1,020,000. And various employee benefit amounts are higher including contribution limits to qualified retirement plans. All of this means that it is time to adjust your payroll, account for the changes in 2019. And again, coming back to your 2018 return, it is not enough to just do it on a one-year basis. You have to take a multiyear approach and look at where you stand now, what your business looks like ahead as far as your projections are concerned, and what is happening in Congress. Let me give you some of my final thoughts and then we can get on to some questions. I'm sure a lot of you have questions. I went very fast. I tend to speak fast, but again, everything is in your slides and you will have copies of those to look at at your leisure. One of the things that I alluded to is to watch for legislation that could still impact 2018 returns. Again, there's extender legislation but that's not all. There are a number of correct , technical corrections that still need to be made with respect to rules that went into effect for 2018. And if they are not made, what happens if they are made and what happens again, so this is again something that is very important. For example, there is a technical correction required with respect to qualified improvement property and the recovery period and what Congress wanted to have happen and what actually happened in the final piece of legislation so that is something to be on the lookout for. Again, that will impact your 2018 taxes. Another program has focused on income taxes. But I do not want to forget that you as a business owner, don't forget to give your employees and independent contract tractors the 2018 forms which the due date, January 31, is coming up for supplying them with their W-2s or their 1099s as required. Now remember, it is no longer easy to get extensions for these returns. You really have to meet the deadline or you are going to be penalized. And this is so even though the government , even though the IRS has been delayed in a lot of activities because of the government shutdown. Taxes go on. So that is something that is not going to be delayed. And so those deadlines are fixed and they are not going to be extended. Then I also want to make sure that you are prepared . For those of you working with tax preparers, your tax preparation bill could be higher. And frankly it's justifiably so because of all of the new laws, the new complexity, more filing requirements imposed on preparers. So there's more for preparers to do . It may well be that it is going to cost you a little more and so do not be surprised if it does. I am sure that this will be disclosed and you will know about it. But again, just a heads up on this. And finally, be sure to look ahead to 2019. If you do payroll in-house, hopefully you have completed your payroll changes to reflect the higher Social Security wage base for 2019 and the employee benefit changes that I alluded to a little earlier. A lot is going on. And we will all keep our eyes on additional guidance from the IRS on many of the provisions that I discussed in this program . Some things are awaiting final regulations. We have only had proposals. Some things have been in formal guidance and we are waiting for more guidance. So this is something to keep an eye out for going ahead. Okay. At this point, let's take some of your questions. I just want to make it clear that I cannot give you tax advice. But hopefully, I will be able to share some helpful information so you can find the answers on your own or to your particular needs or discuss them with your tax advisor. So do we have some questions that we can address now? Yes. We sure do. We sure do. We have a lot of really great questions that have come in over the course of the presentation. And they are continuing to come in. So we are going to take this time remaining and we are going to do our very best to address many questions as we possibly can . I want to mention that if we do not get a chance to get to your specific question, we do encourage you to connect with your tax professional for further assistance or get with a SCORE mentor who can assist you with your business needs as well. With that, let's go ahead and jump into the first question. Barbara, actually, this is coming in from several folks attending today. To ask if you can talk about or explain what is a pass-through . Okay. So a pass-through means that owners report their share of business profits and losses on their personal returns. And that includes an S corporation, partnership, limited liability company, so proprietorship, including independent contractors. All right. Our next question , this comes to us from Kevin, I would like to know if there's any differentiation between an independent contractor and a consultant for the QBI deduction. It depends. You have to look at what the activity being performed is. So a consultant is considered one of those specified service trades or businesses that is subject to special limitations on the QBI deduction. So if you are an independent contractor that is not a consultant, then you may not be subject to that limitation. You are and Uber driver for example that would not be a specific service trader business . depends on what the independent contractor is doing. Okay. Our next question comes from Shannon. If you have three unrelated businesses, are the QBI's combined and they are also proprietorships? Okay. That's a really good question. Let me say that this is very complicated. So basically what you do is you figure the QBI deduction separately for each business and then you kind of add that amount together. However, you can opt in certain situations , and again this is technical, you can opt to aggregate businesses. This could be helpful , for example, where you are over the taxable income threshold that I mentioned and one business may not have employees , so there are no W-2 wages, but it has good QBI and another business may not have too much QBI but has W-2 wages. So by aggregating, you may wind up increasing the QBI deduction. So again, it is really complicated on which businesses, for example, specified service, tray, or business cannot be aggregated, so the rules are kinda very technical. The regulations on this run too long to read. But hopefully, your tax advisor will have answers for your unique situation. Okay. Next question is from Pat. You mentioned watching for changes from the IRS. Should I do this personally or should my tax professional do it? If I need to do it, where do I need to go to watch for these changes? That is great. One thing you can do, and I highly advise business owners to stay abreast of changes because you may not want to reach out to your tax advisor and pay billable hours for every little question when you can answer a lot of things yourself, the IRS does send out email information to small business owners so you just have to subscribe to get their email information. There's emails for professionals and for small business owners also picketing which signed up for that, you get those kinds of notices and it would tell you if there is a particular ruling that might be helpful or I did not know I had to do this and here is the notice saying I have to do this and then you can turn to your tax advisor and say is this being taken care of or do we need to do something now so I think that is very helpful and, of course, as a plug to me, I do provide a free idea of the day, sign up at my website, and I send out information about taxes for small business owners that could help you and alert you to questions that you need to delve into further with a tax advisor. Okay. We had several folks asking about the entertainment expenses or changes there. Could you briefly talk about the changes a little bit more? Sure. I will. This is definitely a very complicated area. So basically come of the tax cuts and jobs act repealed the entertainment deduction which used to be 50% of entertainment costs. So let's say you but theater tickets for a customer . They were at your office all day and then they go back to their hotel and went out to the theater by themselves at night. Or perhaps even it could have been with you. There are rules on whether you can deduct 50% of the cost of those tickets. Well, now that is out. You cannot deduct any entertainment costs. However, Neil costs are still detectable. So if you are out of town on business, you can still deduct meals. 50% of the cost of their meals while on the road are still deductible. If you go to an entertainment event, the IRS has made it clear that the cost of food and beverages consumed during the event can be deductible up to 50% if the cost is separately billed, not lavish or extravagant, and the business owner or is this employee is present. So for example, if a company happens to have a skybox for a football game and food is served there, if the cost of the food as part of the cost of the skybox, you do not get any deduction. But if you separately pay or separately Bill for the food that is consumed there, you may be able to deduct 50% of that amount. Now with that said, certain other meal costs still remain 100% deductible . And that has not changed. So still, if you have a company, the annual company picnic, for example, that will likely still be 100% deductible. And I have not seen anything to the contrary on that. The next question comes in from several folks as well regarding the QBI deduction . Folks want to know if they apply , how they apply, and where can they get further information about this regarding how or what qualifies for this deduction. >> This is a very troublesome area because there is not a whole lot of IRS provided information on this. There is a lot of technical stuff. So if you want to wade through what the IRS has put out on this which is pages and pages, it is quite good in the notice that they put out and, in fact, there are a ton of examples which really, I think, in terms of readability, it is a very helpful , I think it is easy to understand, however, it is very lengthy and the whole area is accommodated that it is going to be challenging. In terms of other IRS guidance, so far, perhaps I do not know, I am just going to speculate that perhaps at some point they will put out some more in terms of a publication. It could be devoted more to the QBI deduction because it is so important there is so much interest in it. But as I said earlier in this program, this is something I can send a whole program on. So just going over certain highlights , it is just a sort of to peak your interest in it to know that it is out there and to kind of get an idea of the questions you should be asking. This comes from Matt. It's a three-part question. Met says he has heard that you can remain an LLC but file a request to be taxed as an S Corporation. You know this to be true wax It is true. I did reference that in mentioning the check the box filing. I mentioned it. It is something that can be done. It has certain benefits such as the ability to do withholding on wages that would be paid to the owner. But that is nothing new. That has been around for a long time and still remains a viable option. He also would like to know does the 21% flat tax of my on the fairway to pay yourself? The 21% tax rate applies to the net profit or loss that the C Corporation is reporting. So the C Corporation will be deducting wages paid to the owner and any other employees and that reduces the amount of profit that is subject to tax. So I hope that answered the question. >> Does it apply to the distribution outside of payroll? Referring to distributions outside of payroll would be something like paying dividends to owners and it is totally separate because the corporation cannot deduct evident payments to owners so when it comes to C corporations, we still have what is called a double tax meeting the corporation first pays tax on its profits and then it beats dividends to shareholders , owners, and owners have to pay tax on the dividends on their personal returns. So that is where the double tax on the same amount comes out. And again, it is interesting that the question got raised because this is another consideration in deciding maybe at C Corporation is subject to a flat 21% tax rate but there is a double tax issue to consider so that is why I am saying it is a complicated issue. Regarding the 20% flat tax rate, does this extend to and S Corporation ? No. And S Corporation is not a taxpayer. Except for very limited situations, but basically, an S Corporation is not a taxpayer and passes through to shareholders, it's their share of the business items, their profits and certain other items and then shareholders report on a personal returns. For example, let's say an S corporation has two shareholders, 50-50 shareholders, and the S Corporation makes $100,000 in profits. So it passes through $50,000 to each shareholder. The shareholder will pick that profit up on their personal return and one shareholder may be in the top individual tax packet and pay 87% on that and that the other shareholder may be in the 22% tax bracket and pay only 22% on those profits. The Corporation, the 21%, that tax rate applies only to literacy or regular operations C or regular corporations. This question comes from Peggy. She asked for new businesses, she mentions a sole proprietor, it started in 2018, it is not yet profitable, can you talk about any of the startup costs which are deductible under the new tax law? There was no change in the tax rule for deducting startup costs. So start up costs, you started your business in 2018, costs that you incurred to start your business prior to opening your doors may be deductible in full on your 2018 return. There is a dollar limit and anything over the dollar limit has to be spread out over 15 years. This is an election to be made to report that those startup costs as an upfront right of a 2018 return. >> Our next question is asking if, did you mention that the estimated taxes paid by Jerry 15, will those be counted toward 2018 or was that for 2019? >> The final installment of your 2018 estimated taxes is due January 15, 2019. So that counts to your 2018 tax payments. I know it is a little confusing because, if you are also making state estimated taxes , it is deductible in your year of payment. It's a little complicated. But again, what we are talking about is paying off your 2018 taxes by the estimated tax deadline of January 15, 2019. And anything else that's due should be paid by April 15. >> Keisha has a two member LLC that's also a separate sole proprietorship. She wants to know if she wanted to consider electing out of the IRS audit. The two member LLC that's filing a partnership return does have to consider that. So if the two member LLC's filing the form 1065, they will have to make that election. Yes. They will have to think about making that, whether they want to make that election. Making that election, it means the IRS would then have to audit each of the LLC members it eventually with respect to any LLC items, income deductions and such. Okay. We've got time for one last question. This comes to us from Thomas. He asks with married joint filers, if one is an employee and the other one is a sole proprietor, can you suggest how the file? I'm not really sure I understand the question because I guess the decision is whether to file jointly or married filing separately. And again, software can run the what if to determine whether it is better one way or another but it is not really, it is impossible to decide whether it is better one way or another but likely it is , filing a joint return is preferable. But there are exceptions. So let the software or your tax professional make a decision. Those are all the questions that we have time for today. If we did not have a chance to address your question, we encourage you to connect with your tax professional after this session today. You can also connect with a SCORE mentor. They can assist you with your further business needs. Mentors can be found online or in local chapters near you. You can check out for information on requesting to work with a mentor. As a reminder, a link to the recording of this session is going to be sent in a postevent email. We will also send the slide deck as well. It will go out in just a little bit later on today. On the half of SCORE, I would like to thank you all for attending. I would like to give a very big thank you to Barbara Weltman for presenting with us . Thank you so much. It was a pleasure. >> Thank you again, everyone. We look forward to seeing you next time. Take care. [ event concluded ] >> ................
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