For owners, partners and shareholders of S Corporations, LLCs and partnerships — who pay their portion of the business' taxes through their individual tax returns (known as "flow-through entities") — the new tax regulations can be very complicated and still need to be defined, said Vic Hausmaninger, founding partner of HBLA Certified Public Accountants, Inc. in Irvine, Calif.
“Basically, they get a deduction on taxable income for a portion — up to 20 percent — of the income that comes from those entities, which basically means 20 percent is not going to be subject to taxes," he said. "There are some exceptions, some limitations and the formula for doing so is quite complex.”
Giordano agrees that it is not all cut and dry for these businesses.
“It is complex because the 20 percent generally applies if the company has W2 wages,” she noted. “So, in order to get the 20 percent reduction, the company must have wages. There are other limits relating to wages. Additionally, some small businesses like law firms, accounting firms and other professional service companies aren’t entitled to this 20 percent deduction at all or have other limitations on its availability.”