Tax Overhaul: What Small Businesses Need To Know

Small business owners are awaiting details of a reported Republican deal in principle on a tax overhaul, the details of which could come soon.

The deal, which would reconcile differences in the House and Senate versions of the tax bill, may answer the question of which business owners will pay lower taxes, and how much of a break they'll get. Both bills have raised the possibility that many owners, including professionals like accountants and consultants, wouldn't see a tax cut.

But gains were expected for companies like builders and manufacturers; both versions of the tax bill would raise the deduction that lets many kinds of equipment purchases be written off right away.

Top GOP aides said Wednesday the final House-Senate compromise is on track to be unveiled this week.

Before the news of a reported deal, lawmakers appeared in general agreement on some broad themes. Issues where there were significant differences included the tax rates for all types of companies and the size of deductions for equipment, property and interest charges. How much companies will pay in tax starting in 2018 will depend on fine points, technicalities and exemptions, tax experts say.

"The devil's always in the details and it's not there yet," says Edward Reitmeyer, a certified public accountant with Marcum LLP in Philadelphia.

Five things small business owners should know about the two versions of the legislation:

Pass-Through Income

Perhaps the biggest consideration is over the tax rate for the vast majority of businesses -- those that are sole proprietorships, partnerships and the companies structured for tax purposes as S corporations. These companies are called pass-throughs since revenue and expenses are accounted for on separate tax forms and then "passed through" to the owner's personal 1040 returns and are taxed at individual rates. They differ from most large, well-known businesses structured as C corporations, which pay...

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