Reportedly, more than 40 million independent workers run diverse businesses across the United States. That spans enterprises from bakeries, laundromats and auto garages to furniture movers, tax-preparation outlets and convenience stores.
And, quite literally, millions of other money-making ventures.
As large as that number sounds, it could soon ratchet up materially, given new incentives targeting small and medium-sized businesses that were recently announced in the 2017 federal Tax Cuts and Job Act.
Here’s what is being dangled by regulators as attractive fruit that should reasonably lure entrepreneurs and other would-be business participants in Connecticut and nationally into the commercial sphere: an eye-opening 20% “pass through” on earned income. That money that will never taxed for independent contractors, self-incorporated individuals, sole proprietors and other similarly situated -- and eligible -- business operators.
That word “eligible” is key, and striving to understand its surrounding details has reportedly been problematic for many individuals who want to reap the benefits. A recent Accounting Today article on the tax cuts for duly qualifying businesses stresses that, “Many of the self-employed have little understanding of the new tax law.”
That will change, of course, given the legislation’s strong upsides for eligible businesses. The law provides the stated 20% deduction on income for unmarried business owners on earned amounts up to $157,500, with that amount being doubled to $315,000 for married couples.
Unsurprisingly, there are a few caveats to deal with, one being that some enterprises offering professional services (e.g., accountants and attorneys) won’t be eligible to receive the full deduction.
There is understandably much enthusiasm regarding the new law, with commentators routinely endorsing its strong upsides. One of them predicts that the pass-through opportunity will motivate “more and more people to launch their own independent career.”
Questions concerning the federal law, as well as business challenges and opportunities generally, can be directed to attorneys at an experienced commercial law firm.