Subscribe to our newsletter for monthly tax tips:

Blog

Schedule a Free Consultation Learn About Our Services

How Does the “2017 Tax Cut and Jobs Act” Affect YOU in 2020?

Posted on October 30th, 2020

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

So first, how does the The 2017 “Tax Cut and Jobs Act” affect small businesses?  Let’s take a look.  Assume the following:

  • You and your spouse are 50% owners in your Sub-Chapter S (1120S) business.
  • Each of you takes a $25,000 annual salary
  • The Net Income of the business is $50,000, so each of you reports 50% of the business Net Income on your K-1 on your personal (1040) tax return.
  • You do not have enough deductions to itemize on your tax return, so can take only the standard deduction.

Based on the above assumptions, here is what your tax liability would have been in 2017:

Loader Loading...
EAD Logo Taking too long?

Reload Reload document
| Open Open in new tab

Based on your total gross income of $100,000 (salaries plus net income), and the standard deduction in 2017 of $12,700 and 2 exemptions of $4,050 (total of $20,800) for a married couple filing jointly, your taxable income becomes $79,200, resulting in taxes due of $11,278.

Loader Loading...
EAD Logo Taking too long?

Reload Reload document
| Open Open in new tab

Now, in 2020, not only were tax rates reduced in all tax brackets, but the standard deduction was increased to $24,800 for a married couple filing jointly, while the exemptions were eliminated.  Also, for small businesses, an additional credit is available based on of 20% of business net income.  In this case based on the above assumptions, this credit would amount to $10,000, resulting in Taxable Income of $65,200, and taxes due of $7,429, or a decrease in taxes of $3,849 from 2018.

But what if you don’t own a business, how would the tax cuts affect you?  Assume now that you each have an annual salary of $50,000, so total gross income of $100,000:

Loader Loading...
EAD Logo Taking too long?

Reload Reload document
| Open Open in new tab

Your taxable income is now $75,200, resulting in taxes due of $8,629, or a decrease of $2,649 from 2017 (that’s nearly $8,000 over 3 years, 2018 through 2020!).

Clearly, this tax cut act does benefit both small businesses and individuals, just something to consider as we approach the mid-term elections.  As to how tax cuts affect the economy, obviously, it depends on who you ask.  But below are some charts created from historical government statistical data.

Related Articles and Statistical Data:

Whose Income is K-1 Income Anyway, Mine or My Business’?

The Effect of Business Taxes on Job Growth

The Effect of Taxes on Businesses and the Economy

 


Comments are closed.