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Pass-through Income
This page was updated on November 27, 2018Starting in 2018, if you have a small business, self-employment income, you may save money in taxes. The Tax Cuts and Jobs Act allows for a 20 percent deduction for qualified business income from so-called pass-through entities. Those include S corporations and limited liability companies. These entities are known as "pass-throughs" because business income "passes through" to the entrepreneur on his or her own tax return, where it's subject to individual income tax rates. A pass-through business pays no tax itself, but the business owners pay the business tax through their personal tax return each year.
A pass-through business will receive a deduction of 20% of "qualified business income" that can be taken. Qualified business income is tied to the owner's investment in the business, either in wages paid to employees or investment in capital assets bought and used in the business. Capital assets could be a business car, equipment, or furniture. If your small business doesn't have employees, and you don't have many assets, you probably won't be able to take this deduction.
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