Maximizing business deductions on tax day

Maximizing business deductions on tax day

■However, if your business is an S corporation and if, as is often the case, you yourself are one of its employees, you will have to determine the maximum salary that you can pay yourself under Subchapter S “minimum compensation” rules in order to maximize your company’s W-2 wages and thus your section 199A deduction. But you must balance this determination with Social Security Tax considerations, New Hampshire News Profits Tax considerations, and factors concerning any contributions you may want to make to a federally tax-favored qualified retirement plan. ■But if your taxable income is at or above your section 199A threshold amount, computing your section 199A deduction can suddenly become extremely difficult. For example, in order to obtain the deduction in this situation, you will probably have to conduct your business as an S corporation. ■Furthermore, if your business is an SSTB and if your taxable income is within your phase-in range, your section 199A deduction may be subject to a significant reduction, and if your taxable income exceeds your phase-in range, you’ll receive no section 199A deduction at all.

■More than a few tax scholars have written that section 199A is “overwhelmingly complex” — indeed, they are arguably the most complex provisions in the 200-plus pages of the Tax Cuts and Jobs Act of 2017 and in the many hundreds of pages of section 199A regulations under the section. Having written a 350-page book about the section, I can only agree. ■A second major factor is whether, if your taxable income equals or exceeds your threshold amount, you are within or beyond your section 199A “phase-in range.” The phase-in range for married taxpayers is $100,000. For individual taxpayers, it is $50,000.

■However, if your taxable income is less than your section 199A threshold amount for 2020, computing your section 199A deduction is likely to be fairly simple: It will be 20% of your share of the net business income of your business, capped at 20% of your taxable income less capital gains. This computation rule will apply whether your business is what section 199A calls a “specified trade or business” (an SSTB) or any other type of business, which section 199A calls a “qualified trade or business” (a QTOB). SSTBs consist of all of the classic professions except architecture and engineering. Thus, if, for example, if you are married, if you own a single-member LLC classified for federal tax purposes as a disregarded entity, if you are taxable on your single-member LLCs income as a sole proprietorship, if your business is manufacturing and selling widgets (i.e., it is a QTOB) and if your net 2020 business income is $300,000, your section 199A deduction will be $60,000 and your taxable income will be $240,000. And this will also be true if your business is an SSTB — e.g., accounting or law. ■A major factor in determining your section 199A deduction is a dollar amount described in the section as your “threshold amount.” If you’re married filing jointly, your threshold amount for 2020 is $315,000. For most individuals filing separately, it’s $157,500.

Or, to be more practical, may I suggest that before your file your 2020 federal tax return, you consult about your Line 13 claim with an accountant who has a comprehensive knowledge of section 199A. Source www.concordmonitor.com If you’re still not convinced that section 199A is a complex as I’m suggesting, may I suggest that you take a look at section 199A(b)(3)(B)(i). But first take an aspirin or two. (Just kidding.)

■Finally, it is important for you to be aware that the tax preparation software that every accountant uses to prepare client tax returns and that you yourself undoubtedly use if you prepare your own returns may not compute your section 199A deduction accurately. And no tax prepare software will deal with your possible need to restructure your business or personal arrangements to maximize your section 199A deduction. ■Indeed, whether your income is below, at or above your section 199A threshold amount, you may have to undertake significant restructuring of your business to maximize your section 199A deduction, such as, in the case of taxpayers whose threshold amount is less than their threshold amount, transforming their business from an entity taxable as an S corporation to one taxable as a partnership. And in some cases, in order to maximize it you and your partner will have to get married! (Seriously.)

The News Highlights

  • Maximizing business deductions on tax day
  • Check the latest News news updates and information about business, finance and more.
Disclaimer: If you need to edit or update this news from compsmag then kindly contact us Learn more

For Latest News Follow us on Google News


Latest Headlines
  • Show all
  • Trending News
  • Popular By week
3-on-3 Basketball Tournament Raises Money to Fight Addiction

3-on-3 Basketball Tournament Raises Money to Fight Addiction

EAS Foundation is planning to host a fundraiser on Aug. 29 at Twin Oaks Golf Course in Demark. “I think that this is what our foundation is about. It’s helping ...
The Dunkirk Foundry Agreement provides a window into GFG's complex financing web

Facial recognition software used to verify unemployment recipients allegedly doesn’t work well

With millions of people unemployed due to the coronavirus pandemic, state offices have dealt with a surge of claims over the past year. Some states reported ...
Nintendo Switch Prime Day Deals (2021): Save Bubble Shares Early Nintendo Switch Bundle, Joy-Con, and Game Sales

The Amazon Prime Day laptop discounts we expect to see in 2021

With the rise of remote working, laptop use has spiked in the past two years. With all that extra use, now could be the right time to upgrade your old ...
The Dunkirk Foundry Agreement provides a window into GFG's complex financing web

News Summary: June 20, 2021 | Local

Longview SBDC hires contracting expert Texas Bank and Trust Co. operates 21 full-service branches throughout East Texas and the Dallas-Fort Worth area. With ...
While money launderers buy Dalís, the US seeks to lift the veil on art sales

While money launderers buy Dalís, the US seeks to lift the veil on art sales

“No invoices? Cool,” she replied. “No receipt, no invoice, I’m good with that. That’s the way I like to do business.” He told her she was not getting an ...
All in the Family: Manchin Family Providing Health Care in Marion County (West Virginia) for Over 40 Years |  WV News

All in the Family: Manchin Family Providing Health Care in Marion County (West Virginia) for Over 40 Years | WV News

Manchin isn’t the only member of his family currently working at the clinics. His oldest child, Angie Hager, has worked with him as a physician’s assistant ...
How about 'Monkey Business' in Clinton?

George Fant’s Dream Big Camp offers financial seminar in partnership with US Bank

Copyright 2021 WBKO. All rights reserved. Lanae Easley also attended the seminar, “you want to definitely educate yourself. If you don’t know, there is a ...
Minnesota man refuses to give fingerprints, gets fired for it

Minnesota man refuses to give fingerprints, gets fired for it

CLICK HERE TO READ MORE ON FOX BUSINESS Harrington, 37, however, told AscensionPoint in July 2017 that having his fingerprints captured was contrary to his ...
Dubuque-based lumber company to acquire Georgia business |  Tri-state News

Dubuque-based lumber company to acquire Georgia business | Tri-state News

Metro Building Products will maintain its name, marketing focus and local management, the release states. Metro Building Products specializes in ...
How Brazil is reforming a public fund to finance broadband expansion

After the 2008 financial crisis, COVID-19 Another milestone in the long decline of the West and the rise of China

One aspect of this ploy of the Communist Party of China (that effectively and absolutely owns the country) that often goes unnoticed in India is China’s ...
Show next
Compsmag - Latest News from tech, business and health
Logo