New tax reform provision rewards small business owners with deductions and retirement incentives

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There’s good news for small businesses looking for an additional tax deduction this coming tax season. And there’s an even better reason to sponsor a retirement plan or amend a current one. As part of the 2017 Tax Cuts and Jobs Act signed into law by President Trump, a new tax deduction (IRC § 199A) offers up to a 20% deduction for those who qualify.

Details of the Provision

The new provision, under IRC § 199A, affecting millions of taxpayers, provides up to a 20% deduction for Qualified Business Income (QBI), depending on the type of business, referred to as “Specified Service” business, as defined in code § 1202(e)(3)(A).

A specified service business includes reads as such on the IRS website:

Specified service trade or business (SSTB), which includes a trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, dealing in certain assets or any trade or business where the principal asset is the reputation or skill of one or more of its employees.

This new code, (Section 199A), allows business owners of S corps, sole proprietorships, or partnerships, to take an additional 20% deduction on qualified income if:

  • They make under $315,000 are married and file jointly
  • They are single and make under $157,500

What Happens if Income Exceeds these Amounts?

If a taxpayer makes over this amount, there may be good news.

One way to potentially bring income down is by setting up a tax-advantaged employer sponsored retirement plan, like a SEP, SIMPLE, 401(k), defined benefit, or cash balance defined benefit plan. This can allow a taxpayer to defer compensation into the retirement plan, and receive the needed tax reductions to potentially qualify for the 199A deduction.

Under the new tax laws, it could be more expensive to not have a retirement plan in place. In addition, the benefits of a retirement plan are many, including:

  • Lowering taxable income
  • Tax-deferred investment growth
  • Retirement savings and
  • Asset protection from creditors
  • WealthPRIME™ helps provide such solutions in tax mitigation, tax reduction, and retirement planning.

Want to Learn More About WealthPRIME™?

If you’re interested in learning more or have questions about how WealthPRIME™ can build meaningful wealth, simply visit www.WealthPRIME.com and request your customized WEALTH REPORT, or you can call (855) PRIME-40.

Additional Reading

https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-provision-11011-section-199a-qualified-business-income-deduction-faqs

WealthPRIME™ does not provide legal or tax advice. Please consult with your tax attorney.