Tax Musings of a Burbank CPA: What Entities Qualify for the New Sec 199A Business Writeoff?

In 2018, a new tax write-off has been created for qualifying businesses – the Section 199A Business Deduction. This deduction equates to 20% of Qualified Business Income assuming you meet income and salary limitations.  Also, shareholder reasonable compensation, interest, dividends and capital gains and losses don’t qualify. But if you meet these requirements, exactly what entities and businesses have Qualified Business Income?  Based on my research, here are the qualifying businesses:  1. Sole Proprietorships – Schedule Cs. 2. Individual Owners of Rental Properties – Schedule Es. 3. S-Corporations (net of reasonable compensation to shareholders.)  4. Partnerships and LLCs (on form 1065.) 5. Trusts having business income or Rental Property income.  6. S-Corporations, Partnerships and Trusts owning any of the above pass-through entities (future regulations will give guidance on how to determine the deduction in case of tiered entities.) Basically, any non-C-Corporation will probably qualify for the Section 199A deduction.  It is interesting that rental property income will qualify for this tax benefit.  What it means is that with proper planning, the new deduction can significantly benefit many types of small businesses going forward. So now you have the information; now you need to see your tax preparer to see how this will benefit you and your business(es).   [...]

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Tax Musings of a Burbank CPA: Tax Reform Creates Desire for the C Corporation

(Copyright 2018, Bradford Tax Institute – thanks for the article on S Corp vs C Corp Debate in 2018.) When you first see that 21 percent tax rate for the C corporation, you have to think that this could be the choice of entity for your business operation. Further, when you find yourself in the out-of-favor group for the 20 percent deduction authorized by new tax code Section 199A, you naturally gravitate to thinking about the C corporation, perhaps as a means of getting even. The table below gives you a good look at how you would pay taxes on your profits, depending on your Form 1040 tax bracket. In the S corporation column, we listed the tax rates by the brackets that apply to individuals. To see exactly how this table works, let’s say that you are in the 34 percent tax bracket and have $100,000 in profits. If you operate as an S corporation, the profits come to you on a K-1 and you pay your Form 1040 taxes at the 34 percent rate, for a total tax of $34,000 on your S corporation profits. If you operate as a C corporation, the profits are first taxed at the C corporation level at a rate [...]

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Tax Musings of a CPA: Retirement Plan Contribution Limits for 2018

In 2018, various retirement plan contribution limits have changed.  Here are the new limits for amounts and income levels for the following: Traditional IRAs: The maximum contribution for 2018 stays at $5,500.00 if you are under age 50. The catch-up contribution for those who are 50 or older also stays at $1,000.00. If you are in a qualified plan, the maximum income you can make if single and still make a full traditional IRA contribution starts at $63,000.00 Adjusted Gross Income (AGI) and phases out the contribution if you make over $73,000.00.  If you are married filing jointly, the phaseout starts at AGI of $101,000.00 and phases out at $121,000.00. If you file married separately, the contribution starts  phasing out immediately and at $10,000.00 AGI the contribution is phased out entirely (Boo!) Roth IRAs: The maximum contribution for 2018 stays at $5,500.00 if you are under age 50. The catch-up contribution for those who are 50 or older also stays at $1,000.00. You have an income limitation to contribute to a Roth IRA, whether or not you are in a qualified plan at work. The maximum income you can make if single and still make a full Roth IRA contribution starts at [...]

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