Section 199A Tax Deduction Strategies: Key Details For Taxpayers

One of the biggest changes from the Tax Cuts and Jobs Act…

The Section 199A deduction is an extra deduction of 20% of the ‘qualified business income’ that may be available to many owners of sole proprietorships, partnerships and S corporations. Some trusts and estates may also be able to take the deduction.

If your income being a single taxpayer is more than $157,500 or your income as a joint taxpayer is more than $315,000 your Section 199A deduction amount could be eliminated

To maximize your opportunity for a QBI deduction as a business owner, you can try any of the following strategies: 

Lower Your Taxable Income

Try to lower your taxable income by increasing deductions or by spreading your income over multiple taxpayers. You can also consider making more contributions to your retirement plans like IRA, 401(k) or any other plans. If you have a high-deductible health insurance plan, you can also make a pre-tax contribution to a Health Savings Account and reduce your taxable income.

Make Charitable Contributions

Contribute directly to a charity or through a donor-advised-fund (DAF). Charitable contributions deductions are one of the simplest ways to increase your deductions before the end of the year. You can donate your appreciated stock or can make an advance donation for 2020 in this year and claim the deduction for 2019. This will help lower your income subject to tax and help you stay under the threshold for the 199A deduction. 

Business Strategies

To lower your taxable income,buy and place in service your business assets before December 31 that you can expense 100 percent. You can also look into changing an entity, revisiting compensation models, and other business assets, in order to characterize your business income.

If you have control over the timing of your income, you might consider waiting to take on that next project until the next year to keep your income level below the threshold. At the same time, you might want to accelerate the payment of some expenses to the current year to reduce your taxable income.

If you are having a hard time understanding the complicated 199A deduction rules, contact our office at 909-217-7855 for a free consult and let us see which strategies may be the most effective for your situation.