As we approach the holiday season and the close of 2018, many business owners are turning their focus toward the impending end-of-year tax filing. While the tax preparation process may not be new for you, the tax code changes set into motion by the Tax Cuts and Jobs Act of 2017 (2017 TCJA) will most likely affect your outcome.
The 2017 TCJA will affect nearly every taxpayer, but business owners, in particular, stand to gain a great deal from the updated Internal Revenue Code Section 199A Qualified Business Income Deduction — as long as they know the correct steps to follow. Not all businesses qualify for the substantial 20 percent tax deduction. Sole proprietors, S Corporations, LLCs and other pass-through entities are most likely to benefit from the new law, but factors such as type of entity, income and industry affect just how much they stand to gain.
If you are in a specified trade or business that earns over the allowable threshold amount, there are effective strategies to avoid the phasing out of your benefits consistent with the newly published IRS regulations, such as:
• Forming multiple entities by organizing the different functions of your work (billing, advertising, record keeping, etc.) into individual businesses, each of which qualify for the deduction.
• Increasing the wages paid by your S Corporation to yourself and/or your qualifying spouse, reducing your flow-through income to maximize your deduction amount.
• Making additional capital purchases for your business, such as equipment or real estate, which can act as an alternative to taking wages and quality for the new 100 percent bonus depreciation and/or new section 179 that allow for deducting the entire purchase cost in the year of acquisition, as qualified.
Tax attorney Steve Moskowitz practices tax law as the founding partner of Moskowitz LLP in the financial district of San Francisco, California, overseeing a team of accomplished tax attorneys and accountants.
