A 2019 Tax Break for Small Business Owners

Small business owners may be looking forward to a tax break in the new year. The GOP tax plan was hastily engineered and rolled out to benefit big corporations--not small business owners. Now a 20% deduction is available to entrepreneurs—but there are limits. You may qualify for the break if your taxable income is below $157,500 if single, or $315,000 if married.

Becoming an LLC may come with additional requirements

Many of our clients over the last few years have upgraded their business status to an LLC or other corporate structure. The reasons are simple— it separates the business from its owners. A corporation acts like a completely separate body that can do things like buy and sell property, be taxed and enter into contracts. Most importantly, it protects its owners from personal liability for corporate debts and obligations. LLCs are very popular right now, and an LLC can save you money on taxes, but there’s a caveat.

Here are some things to think about if you’re considering an LLC:

1. An LLC isn’t a free-for-all

The new tax law's 20% deduction on qualified business income is subject to limitations that keep it from being a free-for-all for every entrepreneur. In general, to qualify for the full deduction, your taxable income must be below $157,500 if you're single or $315,000 if you're married and file jointly.

2. If income exceeds these thresholds, you may not qualify for the deduction

Entrepreneurs with potentially high-earning service businesses, such as doctors, lawyers, CPAs and financial advisors—those positioned to make a lot of money--may not be able to take advantage of the deduction because their incomes exceed the limits.

3. Your spouse’s income: Another caveat that may further limit the potential deduction 

Partners in a business may find themselves in another situation in which one owner gets the 20% deduction and the other doesn't. While partners may qualify, if they have a high-income spouse, they may wind up exceeding the taxable income threshold. In this case you can have two people doing the same work for the same pay, but only one can take the deduction on his/her return because of other factors.
An LLC protects owners from having their personal assets seized by the business' creditors. For many entrepreneurs and small business owners, an LLC remains the best choice for an upgrade to a sole proprietorship. With the new tax laws, an LLC now provides additional benefits.

Are you planning to upgrade your business status to a corporation in the new year?

Make an appointment today by contacting us at one of our three Bay Area offices. Our dedicated team is helpful, compassionate and affordable.

Small business owners may be looking forward to a tax break in the new year. The GOP tax plan was hastily engineered and rolled out to benefit big corporations--not small business owners. Now a 20% deduction is available to entrepreneurs—but there are limits. You may qualify for the break if your taxable income is below $157,500 if single, or $315,000 if married.

Becoming an LLC may come with additional requirements

Many of our clients over the last few years have upgraded their business status to an LLC or other corporate structure. The reasons are simple— it separates the business from its owners. A corporation acts like a completely separate body that can do things like buy and sell property, be taxed and enter into contracts. Most importantly, it protects its owners from personal liability for corporate debts and obligations. LLCs are very popular right now, and an LLC can save you money on taxes, but there’s a caveat.

Here are some things to think about if you’re considering an LLC:

1. An LLC isn’t a free-for-all

The new tax law's 20% deduction on qualified business income is subject to limitations that keep it from being a free-for-all for every entrepreneur. In general, to qualify for the full deduction, your taxable income must be below $157,500 if you're single or $315,000 if you're married and file jointly.

2. If income exceeds these thresholds, you may not qualify for the deduction

Entrepreneurs with potentially high-earning service businesses, such as doctors, lawyers, CPAs and financial advisors—those positioned to make a lot of money--may not be able to take advantage of the deduction because their incomes exceed the limits.

3. Your spouse’s income: Another caveat that may further limit the potential deduction 

Partners in a business may find themselves in another situation in which one owner gets the 20% deduction and the other doesn't. While partners may qualify, if they have a high-income spouse, they may wind up exceeding the taxable income threshold. In this case you can have two people doing the same work for the same pay, but only one can take the deduction on his/her return because of other factors.
An LLC protects owners from having their personal assets seized by the business' creditors. For many entrepreneurs and small business owners, an LLC remains the best choice for an upgrade to a sole proprietorship. With the new tax laws, an LLC now provides additional benefits.

Are you planning to upgrade your business status to a corporation in the new year?

Make an appointment today by contacting us at one of our three Bay Area offices. Our dedicated team is helpful, compassionate and affordable.

Facebook’s Charity Foregoes Traditional Nonprofit for an LLC

California Document Preparers is working with a lot of business owners these days who are upgrading their business entities. Their Sole Proprietorships served them well for the first few years, but as they’ve grown and hired a team, leasing office space in some cases, they’ve become very aware that they need a more robust business structure. Many are choosing LLCs—they offer the tax and liability

advantages of a corporation, but provide more flexibility and less paperwork.

Getting it right when you have $46B to give away

When Facebook’s Mark Zuckerberg and his wife, Priscilla Chan, decided to donate 99% of their fortune to charity, they didn’t create the usual foundation with its significant tax advantages; instead, they created an LLC. This is a highly unusual way to structure a charitable gift of an estimated $46B. Yet, as you read below, it becomes clear why they chose an LLC rather than a more traditional foundation—it would have been far too limiting!

1. No limits on lobbying. The Chan Zuckerberg Initiative will put money to work in politics. Zuckerberg wants to be involved in helping to create policy and shape debates—if they’d set the foundation up as a 501(c)(3), they would have been excluded from any kind of political activity.
2. The Chan Zuckerberg Initiative can actually turn a profit. While profitability doesn't appear to be the aim of the new LLC, if part of the Facebook fortune ends up invested in something that makes money, it won't run the risk of breaking IRS rules governing tax-exempt entities. Additionally, any money that is made will be used to further the mission—whatever that may be.
3. It will be easier to do joint ventures. Let’s face it—Zuckerberg is a pretty connected guy, and he’s in an excellent position to build businesses alliances with other organizations. Traditional charities can be difficult partners for the private sector because there are restrictions on how a private foundation can do a joint venture with a for-profit company. By becoming a corporation, they are removing any potential barriers to forming relationships that could be beneficial.
4. Avoiding the 5 percent rule. By using a corporate structure, Zuckerberg is avoiding a rule about having to give away 5% of a nonprofit foundation's value every year. The Chan Zuckerberg Initiative can spend at the pace that makes most sense for the problem they’re trying to solve or the strategy they’re pursuing at the time.

Are you considering upgrading your business entity to a corporation? Stop in at one of our Bay Area offices to get started. We’re here to assist you.