The Small Business Gift

If you have a job where you are responsible to pay your own taxes or have passive income. Trump definitely gave you a gift with the new tax bill. The house bill would have been terrible but we were lucky the Senate came to our rescue. Here is a comparison on how your Qualified Business Income will help you save money on your taxes by incorporating and choosing the right entity for your business.

Section 199A of the new tax bill provides a deduction that is equal to the SUM OF:

  1. The LESSER OF:

  • the "combined qualified business income" of the taxpayer, or

  • 20% of the excess of taxable income over the sum of any net capital gain

  1. PLUS the LESSER OF:

  • 20% of qualified cooperative dividends, or

  • taxable income less net capital gain.

Initially the House Bill stipulated "Section 199A(d)(1) makes clear that there are two "trades or businesses" that are not eligible for the 20% of QBI deduction:

  1. Anyone who is in the business of being an employee (yes, being an employee is considered being in a business), and

  2. Any "specified service trade or business."

Then, Section 199A(d)(2)(A) defines a "specified trade or business" in reference to Section 1202(e)(3)(A), which includes the following:

"any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, 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 1 or more of its employees."

In summary, the house bill would have precluded Accountants, Lawyers, Doctors, Nurses, Insurance Agents, Freelancers, Contractors, etc... from taking the 199A deduction but in the end they modified the verbiage to include a phase-in phase out provision. Amen to that...

This probably still does not make any sense to you yet but you don't have to worry because we get your back. The new tax law has a loophole that you really need to know about. But first I can tell you... you need to get in the habit of doing tax planning very early instead of waiting until the last minute. This time around, when you are ready to get your taxes done, don't just go drop your tax documents and leave. Make sure you talk to your CPA about your business goals for the coming year and ask how he or she can help you achieve those goals. Your CPA can’t change the past. But he or she can help guide you in your journey ahead when things change such as the new tax law. Your accountant can also help you avoid lopsided tax return in the future. A lopsided return is when you either have to pay a large amount or receive an abnormally large refund during tax time.

At ANROPI we are dedicated to HELP YOU KEEP WHAT IS YOURS. If you are interested in working with us for your tax preparation needs, please contact us at 615-829-6712 or to schedule an appointment.

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