It turns out that 2017 was a pretty good year for businesses in the US, at least in terms of tax cuts. In fact, regardless of your political leanings, it cannot be denied that the Tax Cuts and Jobs Act of 2017 included reducing tax rates for businesses and individuals. (There were also additional tax benefits for individuals, as we shared in a previous post).

Of course, as with all things government and IRS-related, it would be something of an understatement to claim that interpretation and implementation tend to be somewhat complex.

In an effort to provide a bit of clarity and guidance, we share this piece, published by financial planner and strategist Michael Kitces, at his blogsite,

Proactive Section 199A Deduction Strategies for Small Business Owners

The Tax Cuts and Jobs Act (TCJA) brought the biggest changes to both individual and corporate taxes that we’ve seen in the past 30 years. Included in those changes was IRC Section 199A, which is a new section of the tax code that introduces a 20% deduction on qualified business income (QBI) for the owners of various pass-through business entities (which include S corporations, limited liability companies, partnerships, and sole proprietorships). Fortunately, the QBI deduction will provide big tax breaks for many business-owning clients, but unfortunately, the new deduction is highly complicated, and it may take some time before the IRS can even provide more meaningful guidance on how it will be applied. However, the reality is that the planning opportunities created by IRC Section 199A are tremendous, and practitioners are already eagerly exploring how they can help clients reduce their tax burden through creative strategies around the QBI deduction.

In this guest post, Jeffrey Levine of BluePrint Wealth Alliance shares some of his own QBI deduction strategies and considerations after the TCJA. Broadly speaking, most QBI deduction strategies can be broken into the three buckets, including: income reduction strategies to stay below the income threshold where the specified service business or wage-and-property tests kick in, “income alchemy” strategies for transforming income from a specified service business into non-specified service business income, and other business strategies – such as hiring more W-2 employees – which are focused on favorably characterizing business income.

Notably, within each bucket are a wide range of tactics. Business owners who could benefit from income reduction strategies can consider ideas such as planning around retirement contributions, transferring portions of ownership to various non-grantor trusts, and revisiting filing separately as a married couple. Business owners who could benefit from “income alchemy” strategies can consider spinning-off certain assets and leasing them back, creating employee leasing companies, and even avoiding marketing language that makes strong claims about a business owner’s skill. And business owners who could benefit from favorably characterizing business income may want to reduce or eliminate guaranteed payments to partners, change profit-eligible-only S corporations to partnerships, or switch from a salaried employee to an independent contractor.

Ultimately, the key point is to acknowledge that IRC Section 199A creates a tremendous number of planning opportunities after the TCJA. New strategies with QBI deduction implications will certainly continue to be developed with time and further guidance from the IRS, but even in the present, financial planners already have enough reason to reach out to business-owning clients and help them reduce their tax liabilities!

Ask Informed Questions About Your Tax Strategy

So, here we have two financial experts sharing their ideas about the impact of the 2017 tax cuts on small businesses and yet, I’m sure plenty of questions remain. This is why you should always check with your own accountant or tax professional when changes are made to the tax code. While I’m not a CPA (and do not claim to be a tax expert) my hope is that, by sharing this article, you now have enough information to at least ask informed questions about your own tax strategies for small business.

I will say this though, if the answers you receive differ markedly from the information shared in this article, it may be time to get a second opinion.


Best Regards,

Jared Toren
CEO & Founder

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Author: Jared Toren