The Section 199A deduction is a brand new tax law taking effect this year. In order to take full advantage of any possible refund, it’s important to work with your tax advisor to understand the nuances of the law and how it applies to your unique situation.
To get you started, we put together the following strategies for you to consider:
1. Determine what applies to you
Determine what, if any, amount of the section 199A might apply to you. If you qualify, you will want to maximize the amount of flow-through income to you without giving up on other benefits such as your retirement plan contribution.
2. Review self-rental agreements
The rent that is charged to your business entity should be at market rate so as to maximize your pass-through income and potential 199A deduction.
3. Account for non-professional products and services
Some doctors sell products in their business. The profits of these sales may not be considered professional health services subject to the deduction phase out. You have the option of segregating the accounting for the separate lines of business.
4. Review partnership agreements
Review partnership agreements in an effort to reduce any guaranteed payments to partners. A better option will be to allocate income, if possible based upon the partnership agreement.
5. Consider your entity selection
Give consideration to your entity selection. For example, if you are operating as an S-Corporation and it is anticipated that your income will fall below the Section 199A limits, then you might want to consider revoking your S-Corp election (this merits special caution, however, given other potential tax consequences).
On the other hand, if you are operating as a sole-proprietorship or a partnership and you are subject to the phase-out, it might be better to be an S-Corporation. The key here is that the new tax laws require looking at various entity options.
6. Review your investments
Be careful on this one – there will be those out there selling investments that take advantage of the 199A deduction. While it may be beneficial to consider this in your decision to invest, ultimately you should look at the investment from the big picture of your risk tolerance and meeting your financial goals.
7. Keep looking for additional guidance
Section 199A is a new deduction and we believe that Congress has meant for this to be a broad tax savings for small business. However, there are still aspects of the law that are not clear.
We are moving into the end of the year with a good understanding, but as with many tax laws, everything is subject to change.
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