How The New Small Business Tax Break Phases Out
If you own a small business, you're likely eligible for a special 20% deduction on your profits. But getting the full benefit is tricky. Not everyone can claim it and some business owners are subject to a phase-out of the 20% deduction based on income.
Most small businesses are pass-through entities - sole proprietorships, limited liability companies, partnerships, and S corporations. They pay no taxes themselves. Their profits move untaxed until they fall into their owners' hands. The problem is, tax rates on individuals are higher than they are for C corporations (which mainly are larger businesses): 21% rate for C corps and a top rate of 37% for individuals.
Business owners can take this personal deduction whether they itemize or not. But it won't last forever: This deduction is slated to end on Jan. 1, 2026.
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