The New Tax Law: 199A Business Deductions

Suppose you could take 20% of your earnings and not have to pay taxes on it. How would you like that?

If you own a business or real estate, you may be able to reduce your taxes significantly by taking advantage of the new tax law.

New Internal Revenue Code Section 199A
One of the most significant sections of the recent tax reform is the new Internal Revenue Code Section 199A Qualified Business Income Deduction, which provides a reduced tax rate to certain businesses.

Whether your business qualifies under Section 199A may depend on how your business is organized. The 20% deduction is available to real estate investors, sole proprietors, S Corporations, LLCs, partnerships, qualified cooperatives, real estate investment trusts, and other types of pass-through entities that don’t pay tax on their own, but pass their income through to their owners. Section 199A also applies to trusts and estates.

Section 199A Limitations
Basically, any business structured as a pass-through entity qualifies under Section 199A, but some business owners will face a phase-out of benefits. The phase-outs apply to any taxpayer in a “specified service trade or business” who earns over $157,500 (single) or $315,000 (married filing jointly).

You are in a “Specified Service Trade or Business” if you are a doctor, a lawyer, an accountant, an actuary, a consultant, a performing artist (stage or studio), a paid athlete if you work in the financial services or brokerage industry, or if you are in any other profession where the principal asset of your trade or business is your reputation or skill (excepting engineers and architects, whose benefits under Section 199A do not phase-out).

Planning for 199A
If you are in a specified trade or business and earn over the threshold amount, it’s worth exploring some tax planning strategies, including the possibility of changing the functions of your business so that all of your income qualifies for the new lower tax rate.

Our tax attorneys and accountants are ready to review your situation to determine if we can help you qualify for the reduced tax. We want to provide you with a strategy that considers all the multiple and complex requirements of 199A and then implement it for you.

Tax Planning for Businesses and Individuals
You should take every tax benefit to which you are legally entitled – no more and no less. Section 199A provides a tremendous benefit for businesses. To see if you qualify, call the experienced tax attorneys at Moskowitz, LLP.

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