As we approach the end of 2019, you should be working with your bookkeeper and tax advisor to project your company’s year-end tax liability and implement strategies for saving as much money as possible. Most tax-saving strategies need to be in place before the end of the year, so make sure you get this process started by late November, if not much sooner.
A few weeks ago, we discussed some general strategies you can implement to save on your 2019 taxes. However, with the Tax Cuts and Jobs Act (TCJA) now in its second year, there are numerous new opportunities for tax savings that you may have never used before. Here are 4 ways—both new and old—you could significantly reduce your 2019 tax bill.
1. The Qualified Business Income Deduction
Perhaps the biggest tax break offered to small businesses by the TCJA is the new Qualified Business Income (QBI) Deduction. Lasting from 2018 through 2025, this provision allows qualifying business owners to take a straight 20% deduction on their net business income for the year. And this deduction is in addition to any ordinary business expense deductions you might have.
To qualify, your business must be set up as a “pass-through” entity, meaning your company’s taxes pass through and are paid at your personal income tax rate. This business structure includes sole proprietorships, partnerships, limited liability companies (LLC), and S corporations—basically all businesses except C corporations and LLCs taxed as corporations.
The deduction does have some restrictions, including for specific types of service businesses like law practices and accounting firms, and it begins to phase out at higher income levels ($157,500 if single or $315,000 if married and filing jointly). Given this, be sure to meet with your Creative Business Lawyer® and/or your CPA to see if your company qualifies.
2. The family leave tax credit
The family leave tax credit is another new (but very temporary) tax-savings measure offered by the TCJA. This provision provides a tax credit for employers that offer their team paid family and medical leave. The tax credit only lasts through 2019, so unless Congress extends it, this is the last year to take it.
There are a few requirements to qualify, such as having actually paid employees for family leave and having a written family-leave policy that offers at least two weeks paid time off. Consult with us and/or your tax preparer if you paid any employees for family leave to see if your company’s leave policy qualifies.
3. Fund a retirement savings plan
Setting up and contributing to an employer-sponsored retirement savings is a great way to not only save money on taxes, but also attract and retain a talented team. You have several different types of retirement plans to choose from, including a 401(k), SIMPLE IRA, SEP IRA, and profit-sharing plans. Meet with us to help decide which type is best suited for your business and tax strategy.
In terms of tax savings, your contributions to the plan are typically tax deductible, and you may also qualify for a tax credit for starting a new retirement plan this year if you don’t already have one. If you set up the plan before the end of the year, the potential tax savings can more than pay for the cost of setting up the plan and funding it.
4. Increased deductions for equipment and vehicle purchases
If you purchased new or used business equipment this year, you could be entitled to a tax deduction of up to $1 million. The deduction is available under Section 179, which allows you to write off the entire amount you pay for qualified business equipment in a single year, rather than depreciating it over multiple years.
Most business property, such as office furniture, computers, software, machinery, and office equipment, will qualify. The deduction can also be applied to SUVs, pickups, and vans weighing more than 6,000 pounds. Under the TCJA, Section 179 was expanded to include building improvements like HVAC, elevators, and security systems. Real estate, however, does not qualify.
To take the deduction, the property must be purchased and put into use during 2019, and it must be used more than 50% of the time for business purposes. The provision caps total equipment purchases for the year at $2.5 million.
Don’t miss any tax-saving opportunities
These four opportunities are just a tiny fraction of the potential tax savings you may qualify for this year. The new provisions of the TCJA provide entrepreneurs with more ways to save on their taxes than ever before. Meet with a Creative Business Lawyer® today to maximize your 2019 tax savings.