Reference: HR1, Tax Cuts and Jobs Act

If you are a successful sole proprietor with no employees, consider converting to S corporation early in 2018 to take advantage of the new pass-through deduction as well as the ongoing tax saving opportunities offered through S corporations.

Fix: In simple form, convert to S corporation, pay a reasonable wage, and take advantage on the new break as well as possible limitations to total Social Security taxes paid.

Example: “Fred” is single and has converted to an S corp.  He makes machined parts and has no employees other than himself.  In the S corp, he pays himself $50,000 W2 salary and has corporate net income of $100,000 after his salary is deducted.  He has no other income on his individual return.  His pass-through deduction is $20,000 under the new law.

Non-tax feature:  An S corporation can acquire a “business identity” until itself which may be marketable upon retirement.  Such a transfer of the business isn’t available to a sole proprietorship.

Call so we can discuss your specific situation.