It’s Tax Planning Time!
On December 22, 2017 the President signed into law the Tax Cuts and Jobs Act of 2017 (TCJA). The 503 page TCJA is the largest tax overhaul since the 1986 Tax Reform Act, and it will affect almost every individual and business in the United States. The effective date is for tax years commenced after Dec. 31, 2017, therefore your 2018 tax year is affected and now it’s a great time for tax planning.(1)
Possibly the most important change is that the TCJA created a new 20 percent deduction for qualified business income (QBID) from sole proprietorships, S corporations, partnerships, and limited liability companies taxed as partnerships. This deduction is available to both itemizers and nonitemizers. This new 20% qualified business income deduction is subject to some complicated restrictions and limitations.
If you are in a service business, there may be some opportunities to maximize your qualified business income deduction (QBID). QBID is limited for specified service trade or business (SSTB), which is defined below.
SSTB-Specified service trade or business. A specified service trade or business is any business involving the performance of services in the fields of health, law, consulting, athletics, financial services, brokerage services, or “any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners.” You may think of it this way: if the success of your business depends on you and not on something that you sell, you’re pretty much included (except for engineering and architecture services, which were specifically excluded). The definition also includes a business where the performance of services consists of investing and investment management trading, or dealing in securities, partnership interests, or commodities.
One possible opportunity is the case of a SSTB that owns its own building. Generally speaking, the SSTB would be categorized as a service business and limit the QBID. However, the SSTB could spin off its real estate holdings into a separate business, which would then charge the SSTB very high rent to use its facilities. Because the real estate business would not count as a service business, this would be an effective way for the partners of the SSTB to transform their service business income into non-service business income.
Please contact your tax advisor to discuss how to maximize your qualified business income deduction (QBID).
Notes: (1) Section 199A of the Internal Revenue Code and IRS Section 199A Proposed Regulations of August 2018.
#1040Ext #ChildTaxCredit #CTC #TheProtectingTaxpayersAct #PTA #LicensingTaxPreparers #tax #taxcut #tcja #carlosnazario #carlosjnazariodiaz #amend #amended #amended1040 #1040 #1040x #1065 #1120 #k1 #qbid #regulations #taxregs #taxregulations #IRC #itemizeddeductions #personalcasualty #statetaxes #mortgageinterest #employeebusinessexpenses #Taxpreparationfees #Investmentexpenses #investmentmanagementfees #educationalexpenses #Jobsearchexpenses #Hobbylosses #Safedepositboxfees #Investmentexpenses #pass-through #phit #personalhealth #taxsecurity #irs #taxreturn #incentives #taxincentives #itemizeddeductions #personalcasualty #statetaxes #mortgageinterest #employeebusinessexpenses #Taxpreparationfees #Investmentexpenses #investmentmanagementfees #educationalexpenses #Jobsearchexpenses #Hobbylosses #Safedepositboxfees #Investmentexpenses #pass-through