By Sandeep Singh
The Tax Cuts and Jobs Act of 2017 which became law in 2018, with depreciation benefits being retroactive to September 2017, provides tax benefits to business owners and real estate investors who are organized as pass-through entities.The law also included other important changes affecting most taxpayers. Proactive taxpayers who tailor their business decisions to benefit from the new laws can potentially save significant sums in taxes. Below are its important features.
Section 199A Deduction
Section 199A of the Internal Revenue Code now provides thatqualifying taxpayers will pay tax only on 80 percent of their profit. However, certain “specified businesses”such as health, law, accounting, consulting, and financial services, may not be able to utilize this deduction if their profits exceed $315,000 for joint filers, or $157,500 for single filers.
Even if you are in one of the specified services business, do not despair. You may still qualify for the deduction by segregating “specified” services from other business income, or by having sale of a product and / or provision of un- “specified” services.
Lower Taxable Income
Furthermore, business owners can lower their taxable income to fall within the $315,000 or $157,000 thresholds by adding a pension plan and making tax-deductible contributions to it. This can be done in addition to other pension contributions, such as 401(k)s. Proactive tax planning can be especially helpful for businesses classified in the specified services business categories.
For qualified businesses, the deduction is limited to the lesser of 20 percent of qualified business income, or the greater of either 50 percent of the W-2 wages paid by the taxpayer including wages paid to him / herself, or the sum of 25 percent of the W-2 wages paid by the taxpayer and 2.5 percent of the unadjusted basis of qualified business property. Most business owners and real estate investors will benefit from a professional analysis to adjust their business practices to maximize tax savings.
Depreciation and Cost Segregation
Under the new law, businesses can immediately deduct the full cost of qualifying property in the year in which it is placed in service under Section 179. Additionally, the maximum deduction under Section 179 has increased from $500,000 to $1 million, and unlimited bonus depreciation has increased from 50 to 100 percent for new or used property with a useful life of up to 20 years.
For depreciable real property, cost-segregation analysis, which identifies parts of the property which can be depreciable on a shorter scale than the typical 39 / 27.5 years, can drastically lower taxable income by accelerating depreciation.
Under the new law, we now temporarily have new estate planning advantages that should be taken advantage of before they expire in the future. For more information, request a copy of our white papers on Section 199A, lowering your taxable income, depreciation, cost segregation, estate planning, or other areas of this new tax law by contacting me at email@example.com.
About Sandeep Singh
A former litigator for the Internal Revenue Service with an advanced degree in taxation and a strong record of military service, Sandeep provides powerful, informed tax representation to businesses and individual taxpayers facing allegations of federal tax violations.
Prior to joining Moskowitz LLP, Sandeep served the Office of Chief Counsel of the IRS, handling all aspects of federal tax litigation for many cases, including US Tax Court trials. In this role, he assessed complex legal issues, developed case strategy, presented legal arguments before federal judges, and negotiated settlements with opposing counsel.
He also advised IRS appeals officers on cases filed in California and other states, and reviewed and approved offers in compromise, installment agreements, and tax appeal matters. Sandeep’s ability to resolve matters for clients stems from not only his tax law knowledge but also his broad base of litigation experience. This includes representation of clients in trust, estate, commercial, and real estate litigation, and service to judges in state circuit and federal district courts.
Before pursuing his law career, Sandeep served in the US Army for five years. He led a platoon of 40+ infantry paratroopers and received several awards, including two commendation medals for exceptionally meritorious service and the Global War on Terrorism medal. Sandeep is admitted to practice in the US Tax Court, is licensed in the state of Maryland, is a federal tax attorney, and does not advise or represent clients on California state tax issues.
About Moskowitz LLP
Tax attorney Steve Moskowitz founded what would become Moskowitz LLP over 30 years ago, offering clients a full variety of services that include domestic, international, civil, and criminal tax law representation, tax planning, and tax return preparation of current or delinquent fillings. Visit www.MoskowitzLLP.com or call 415-394-7200 for more information about legal services, valuable tax resources, or to request a tax consultation.