For business owners, taxes are a significant concern. Fortunately, there are steps that can be taken to reduce a business’s tax burden by utilizing the deductions that are available. For many business owners, structuring a business as a pass-through entity can provide advantages. Pass-through entities such as partnerships, S corporations, and limited liability companies (LLCs) are popular choices among small businesses due to their flexibility and the pass-through deduction that was put in place by the Tax Cuts and Jobs Act of 2017.
However, owners of pass-through entities need to be aware of the risk that they could face tax audits. Recently, the IRS announced that its Large Business & International (LB&I) division would be focusing on large or complex pass-through entities as part of its ongoing effort to address tax evasion. Business owners who are facing IRS audits may want to consider working with an attorney who has experience in cases involving pass-through entities.
The Importance of Properly Reporting Pass-Through Deductions
Pass-through entities allow business owners to report their share of profits or losses on their personal income tax returns rather than paying taxes at the entity level. This structure provides significant benefits, including a deduction of 20 percent of a person’s share of Qualified Business Income (QBI). However, it is important to ensure that all business-related deductions are reported accurately.
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