That 20 percent tax break for small businesses is no free-for-all.

Personal Finance


Saul Loeb | AFP | Getty Images

President Donald Trump speaks about the passage of tax reform legislation on the South Lawn of the White House in Washington, DC, December 20, 2017.

Small business owners may benefit from kinder tax treatment under the new law. They should think twice before becoming incorporated.

The Tax Cuts and Jobs Act offers a 20 percent deduction for qualified business income from so-called pass-through entities, which include S corporations and limited liability companies.

Under the “old” tax code, income from these small businesses would “pass-through” to the owner on her own taxes and were subject to individual income tax rates as high as 39.6 percent.

Now, entrepreneurs are subject to a tax break on the income their businesses generate, but many of them face a key decision: Is it now time to incorporate — and if so, what entity should you choose?

“Everyone wants to form an LLC,” said Sepi Ghiasvand, who is of counsel at Hopkins Carley in Palo Alto, California. “This is a time when an LLC can save you on taxes, but with a caveat.”

Here are the things to consider before incorporating your business.



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