---
title: "Pass-Through Income: What is it and what’s changing?"
description: There are some changes coming in 2018 for taxpayers with pass-through income. C-Corporations got a huge tax break from 35% to 21%, which is effectively a 40% reduction in taxes. So, did the Ma and Pa shops get a 40% tax break like their C-Corp counterparts? Not quite. But, they did get something.
---

[The Dark Horse Blog](https://preferences.darkhorse.cpa/blog)

# [Pass-Through Income: What is it and what’s changing?](https://preferences.darkhorse.cpa/blog/wordpress/2017/12/29/pass-through-income-what-is-it-and-whats-changing)

 Written by [Dark Horse General](https://preferences.darkhorse.cpa/blog/author/dark-horse-general) | Dec 29, 2017 3:13:16 PM

You may have heard that there are some changes coming in 2018 and beyond for taxpayers with pass-through income. Unclear on what exactly this is? Put simply, it is net income after all expenses that is earned by a company and “passed through” to the company’s owners. This would encompass just about all business entity types out there except for C-Corporations. C-Corporations pay taxes at the entity level. Thus, they do not pass-through income to their shareholders until they pay dividends. C-Corporations got a huge tax break – from 35% to 21%, which is effectively a 40% reduction in taxes. As such, many clamored for tax breaks for pass-through businesses since C-Corporations tend to be larger companies and passthrough entities tend to be small businesses.

So, did the Ma and Pa shops get a 40% tax break like their C-Corp counterparts? Not quite. But, they did get something…**They got a 20% reduction in pass-through income from their taxable income**… I’ll admit, when I first read of this, I didn’t believe it. It sounds both too weird and too good to be true. Let’s run through a quick example:

- *You get a K-1 from Ma and Pa LLC dba Dad Jokes that shows Income of $100K. In 2017 and prior, that would mean that you would be taxed on $100K. Go figure. In 2018 and beyond, however, you would reduce that $100K by 20% to arrive at your taxable amount of $80K*. That is the same as getting a $20K deduction for free. Pretty sweet. What’s more is that tax rates have been reduced on that income as well. Very sweet. *Continuing that example let’s say in 2017 you were in the 25% marginal tax bracket for all of that income. That would have meant you paid $25K in taxes on the $100K in income (ignoring self-employment taxes). In 2018, you would be in the 22% tax bracket AND you’d only be taxed on $80K, which means that your tax bill on that $100K in income would only be $17,600, a comparative savings of $7,400.*

That represents approximately a 30% decrease in your tax bill. To that, I declare, “**BOOMSHOCKALOCKA!**”

*To summarize:*

**2017:** $100K x 25% = $25K tax

**2018 (and beyond):** $100K - $20K = $80K x 22%

Wondering how you too can benefit from these tax breaks? Give us a call (619-736-1404) or shoot us an email ([info@darkhorsecpa.com](mailto:info@darkhorsecpa.com)) and let’s start a conversation.

[View full post](https://preferences.darkhorse.cpa/blog/wordpress/2017/12/29/pass-through-income-what-is-it-and-whats-changing)

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