9 Year-End Ways to Maximize New Tax-Law Deductions Ask your CPA these questions to avoid misunderstandings.
By Tom Wheelwright •
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Two years after the T.ax Cuts and Jobs Act of 2017 passed, there is still mass confusion, and we've seen way too many small-business owners miss these cost savings. Every entrepreneur should be even more proactive this November and December to ensure that they are maximizing 2019 deductions versus giving money away unnecessarily to the government.
The tax-planning decisions that you make before December 31 can potentially save you millions over a lifetime. A complete review of your tax strategy with a professional advisor can literally change your financial plans, lifestyle and long-term dreams. So call your CPA today, and start asking these year-end questions about the most misunderstood deductions.
Related: 75 Items You May Be Able to Deduct From Your Taxes
1. The Deduction: Qualified Business Income
The Question: Does your business entity quality for the 20 percent pass-through deduction that many CPAs skipped last year? Find out if your type of business and income level qualify for this significant savings opportunity.
2. The Deduction: Small Business Stock Gains Exclusion
The Question: Can you use Section 1202 to eliminate the gain from the sale of a business (even if it's an S Corporation)? This deduction can apply to new stock issued from an existing company, and many mistakenly think it's only for a new business.
3. The Deduction: Inventory
The Question: Based on your cash flow, does it make more sense to deduct your inventory in the year that you bought it (now allowed with the new tax law for small retailers with under $25 million in sales) or wait until you sell it (old law)? The potential savings are huge, and we've seen this new deduction literally save a business.
4. The Deduction: Bonus Depreciation
The Question: If you have land improvements on used real estate investments, how can you take the bonus depreciation deduction? Many CPAs do not understand this new deduction, and so investors need to ask about it.
5. The Deduction: Business Interest Limitation
The Question: How can my business legally avoid interest deduction limitations? A great CPA will find legal ways to maximize business interest write-offs.
6. The Deduction: State
The Question: If you live in a high-tax state (NY, CA, NJ, IL, WI, CT), can you pay more tax as a business versus on personal returns to reduce your taxes? What are your options? And do you need to set up a business entity by year-end?
7. The Deduction: Home Office and Automobile
The Question: How can you establish a home office to increase your automobile deductions? Most people don't realize that if they have a home office, it can increase their automobile deductions. Because commutes are not deductible, the walk to your home office becomes your commute, making other business travels deductible.
Related: Take Advantage of These 16 Commonly Missed Tax Deductions
8. The Deduction: Automobile
The Question: Should I buy a new car by year-end so I can take advantage of the 100 percent deduction for the business-use portion? This new tax-law opportunity can be significant, and is why many business owners have stopped leasing. For example, if you buy a new car for $80,000 and use it 80 percent of the time for work, you may be able to take a $60,000 deduction for the year in which you bought the car.
9. The Deduction: Income Shifted to Your Children
The Question: Can you legally move some of your 2019 income to your children to reduce your overall taxes? If you pay your child a salary for "earned income" versus "passive income" (dividends, capital gains), it will be taxed at your child's tax rate, which should be much lower than your rate.
While most small businesses owners only talk to an advisor once or twice a year, the best CPAs have regular strategy discussions with clients to review short- and long-term goals, and then how to best support them. These professionals usually have invested in ongoing continuing education and are focused on long-term wins for clients.
Look for a great tax advisor who is passionate about both staying current on new tax laws and supporting their client's financial dreams. While most accountants think linearly, a better accountant finds legal ways to maximize the taxpayer's savings by looking at all options. Make this year-end planning season as productive as possible, and it will be a gamechanger for you and your business.
