What does the new Tax Reform mean for Pass Through Entities starting in 2018?

One of the most significant changes under tax reform is the tax treatment of businesses. Unlike changes to the individual tax scheme, which are temporary and somewhat piecemeal, the changes to the business tax scheme are permanent and fairly thorough. The new tax law now provides for a flat 21% tax rate for corporations.  To avoid an issue where companies were taxed at a lower rate than individuals thus making pass-through entities disadvantaged, business income that passes through to an individual from a pass-through entity and income attributable to a sole proprietorship will be taxed at individual tax rates less a deduction of up to 20% to bring the rate lower. The threshold amount is the amount above which both the limitation on specified service businesses andthe wage limit apply. This threshold amount is $157,500 for individual taxpayers and $315,000 for married taxpayers filing jointly. Phase-ins apply: that means that the benefit decreases as income increases. If your taxable income is below the threshold amount, the deductible amount for each of your businesses is simply 20% of your qualified business income with respect to each business.