Missouri tax cut law to impact a majority of business owners
Posted On: 5-14-2014 | Posted By: WK Staff
Many Missouri business owners will be able to deduct part of their business income on their personal tax returns, beginning in 2017, after the Missouri legislature voted in early May to override Governor Jay Nixon’s veto of Senate Bill 509. The new law also reduces individual income tax rates, beginning in 2017.
The business income deduction will phase in over a period of years, beginning in 2017. After the phase-in is complete, sole proprietors and owners of “pass-through” entities such as partnerships, S corporations and most limited liability corporations will be able to deduct 25 percent of their business income as reported on Schedule C or E of a taxpayer’s federal income tax return and sourced to Missouri.
Similarly, the half-percent income tax rate reduction phases in at the rate of one tenth of a percent per year, beginning in 2017. The rate for the top bracket of income earners will be 5.5 percent, down from its current 6 percent.
Associated Industries of Missouri estimates the business income deduction could affect up to 95 percent of business owners in the state, as most businesses are structured as pass-through entities. Entities organized as C corporations are taxed separately, and their shareholders do not qualify for the deduction.
The law includes a requirement that general revenue from the previous fiscal year must exceed general revenue in one of three prior fiscal years by at least $150 million before that year’s tax rate reduction or business income deduction increase can take effect.
The law also ties the tax tables to the inflation rate and increases the personal exemption amount by $500 for Missouri taxpayers with an adjusted gross income of less than $20,000.
The delayed effective date and multi-year phase-ins means taxpayers won’t realize the full effect of the law until at least 2022, if revenue thresholds are met. In addition, the changes in state tax law will have an impact on federal tax liability that should be carefully considered. Please contact your WK advisor if you have any questions about what the new tax law might mean for you or your business.