By Chris Whalen, CPA ~
Tax Memo – Are You Eligible For Trump’s Passthrough Tax Reduction?
Trump’s Tax Plan includes a Qualified Business Income (QBI) Deduction. This deduction gives up to a 20% deduction on certain business income and uses sometimes complicated formulas. This deduction is for business owners and not for employees.
Do you qualify?
There has never been a time where strategic tax planning was more important. I urge everyone to schedule an appointment with me to analyze your specific situation.
This component of the new law is convoluted, but I believe I have some basic answers based on the proposed IRS wording.
First, all businesses can potentially get a tax break, depending on their personal taxable income.
The law describes businesses as either a Specified Service Business (SSB) or not one. My reading of the law, shown below, has me categorizing everyone, except businesses dealing in commodities such as grain, to be SSB. I am sure more detailed answers will come from the IRS over time.
In the rare instance, where you are NOT a SSB, your phase outs may be higher than those shown below for a SSB, giving greater benefits.
Look how vague and broad this wording is. Don’t all businesses rely on their reputations? Can’t most businesses be thought as a consultants?
A “Specified Service Business” is:
• any trade or business involving the performance of services in the fields of health, law, 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 one or more of its employees or owners; or
• any business that involves the performance of services that consist of investing and investing management, trading, or dealing in securities, partnership interests, or commodities (Sec. 199A(d)(2)).
With the presumption in mind that your business will be categorized as a SSB, here are my notes.
Some taxpayers can get up to a 20% deduction on Qualified Business Income. If you personal taxable income exceeds $207,500 for an individual or $415,000 for a married couple, you will get zero deduction or benefit.
Let’s say that you earn less than those limits.
For the single taxpayer, the taxable income phaseout, phase-in range is the $50,000 between $157,500 and $207,500. This means you can take a partial deduction for taxable incomes in that range and a full deduction under it.
For the married filing jointly taxpayer, the taxable income phaseout, phase-in range is the $100,000 between $315,000 and $415,000. This means you can take a partial deduction for taxable incomes in that range and a full deduction under it.
Where does your personal taxable income fall? Remember, you need to include your spouse’s income if you are married.
There are deeper nuances to this law, but I believe this gives you an initial idea of the parameters and where you may sit within them. The calculation of Qualified Business Income can be complicated and that is why I did not include detailed examples here.
We have plenty of time to plan for 2018 income taxes. Please call me to schedule a tax consultation today.
Tax Laws are complex.
It is very easy to make mistakes that can incur penalties.
Do you have a Tax, Accounting or Business Question?
Call Me Immediately. (732) 673-0510.
“If We Aren’t Working For You, Then You Aren’t Working At Your Best”
Chris Whalen, CPA
79 Oak Hill Road
Red Bank, NJ 07701
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