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Tip #1: Qualified Business Income
One of the most significant consequences and opportunities of The Tax Cuts and Jobs Act of 2017 (TCJA) is the new Internal Revenue Code section 199A, which allows a tax deduction for Qualified Business Income (QBI). QBI includes income from a sole proprietorship, individually held qualified rental real estate and qualified income passed through from an S corporation or partnership. A taxpayer may be eligible to take a tax deduction up to 20% of their QBI. Individuals with 2019 taxable income above $21,700 (single and head of household) and $421,400 (married filing jointly) are not eligible for the QBI deduction derived from a specified service trade or business (SSTB). Calculating the deduction can be tricky and this can be an important consideration when deciding to operate your business as a C Corporation or as a pass-through entity.
Tip #2: Section 179
Take advantage of IRS Section 179. Section 179 of the IRS code allows businesses to deduct the full purchase price of equipment and/or software in the year of acquisition up to $1,000,000. This means that the cost of personal property that is typically depreciated over seven years can be fully deducted up to $1,000,000 in the year purchased. Consider timing of equipment and other qualifying purchases to get the deduction in the year it is best needed.
Tip #3: Retirement Plan
One of the best proactive tax savings tools available to business owners today is a tax advantaged retirement plan. A number of options are available. No other expense allows owners to claim a deduction without having to give up the money spent for the tax benefit. The money usually has to be kept in a retirement account until certain age thresholds are met, but the growth on the funds is tax-deferred until a distribution is taken.
Tip #4: Corporate Entity
Should you be operating under a corporate entity? Many small businesses make the mistake of thinking they are “small” and don’t understand the importance of choosing the correct corporate entity. There are several sole proprietors who could benefit tremendously by becoming an LLC. This can potentially eliminate some of the self-employment tax as well as provide other tax benefits, especially since the new tax law was passed.
Tip #5: Apps
There’s an APP for that! Here are a couple of my favorites:
- Satisfies IRS requirements for a “contemporaneous log” of mileage driven
- Automatic detection of mileage driven. Capture every mile you drive.
- Set your preferences, add vehicles and locations
- Easy classification…Swipe right for business drives…left for personal.
- Robust reporting that integrates with many other applications
- Tracking a pile of receipts can become daunting, especially if you travel often for business and need to organize them for expense tracking, or you run your own business and want to take every write-off your business deserves.
- Follow this link for “The 8 Best Receipt Scanners and Trackers of 2020.”
Also check out our FREE “Tools and Resources” at https://afmcpa.com and click on “Tools and Resources.” We have a broad range of “Calculators” for Taxation, Cash Flow, Investment, Credit, College, Taxation, Home and Mortgage, Payroll and Insurance