It’s important to do tax planning before December 31, you might lose certain deductions if you don’t plan properly. You could deduct 20% of your qualified business income (QBI) if you plan ahead.
If you are married filing jointly and your joint tax return’s taxable income is likely to exceed $321,400 ($160,700 if you are filing as single). Also, if you are running a specified service trades or businesses (SSTB, please refer to the last paragraph of this article for the definition), this article is for you!
Section 199A allows business owners to deduct 20% of the qualified business income. Say if the qualified business income is $100,000, you get additional $20,000 deduction. If you don’t want to deduct $0 instead, you need to pay attention to the following strategies if your taxable income is above the threshold stated in the paragraph above.
Your goal is to keep the taxable income in the range of $321,400 (if you are filing jointly) in order to take the advantage of section 199A. If your taxable income is not way beyond this range, it’s not too late to further lower it by implementing the following:
(1) Realize Capital Loss to offset capital gain if the capital gain is significant in your taxable income.
(2) Make charitable contribution – if you can donate appreciated stocks, that is even better.
(3) Purchase business equipment – if you intend to buy it in the near future, buy it by Dec 31, 2019 instead of 2020. If you don’t have enough cash flow, put it in a finance option can still give you the full deduction and reduce the business income. You do need to put the equipment in service by December 31.
(4) Retirement plan contribution – you still have time to setup the plan by the end of this year. In certain retirement plans such as self-employed SEP and defined benefit plan, you don’t need to make contribution by December 31, 2019, the due date for 2019 deduction is by the date you file the tax return in 2020.
The above last-minute strategies are effective way to lower your taxable income. I hope you can secure this 20% deduction!
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Specified service trades or businesses (SSTBs) is a trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, dealing in certain assets or any trade or business where the principal asset is the reputation or skill of one or more of its employees or owners
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