YEAR-END BUSINESS STRATEGIES

Qualified Business Income Deduction
One of the biggest changes from the Tax Cuts and Jobs Act was the allowance of a 20-percent deduction of qualified business income for owners of sole proprietorships and passthrough entities. This is the qualified business income deduction, and it can apply very generally to most types of businesses, but there are some restrictions.

One of the most significant restrictions limits the amount of the deduction for businesses in certain specified areas. Where the business involves the performance of services in 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, the amount of the deduction is phased out where the taxpayer’s taxable income exceeds certain thresholds.

For 2019, those thresholds begin at $312,400 for joint filers, $160,725 for married taxpayers filing separately, and $160,700 for all others. Taxpayers in one of these specified areas may want to explore ways to defer income to 2020 if they are near the phase-out threshold.

Depreciation and Expensing
The Tax Cuts and Jobs Act provided very generous depreciation and expensing limitations. Businesses may want to take advantage of 100-percent first-year depreciation on machinery and equipment purchased during the year. Additionally, Code Sec. 179 expensing has an investment limitation of $2,550,000 for 2019, with a dollar limitation of $1,020,000.

IMPACT. These provisions do not apply to 2019 only, so there is time to take advantage of them in later years. However, if a business is considering expanding capacity or acquiring new equipment, there has never been a better time to do so than in 2019, from a tax benefit standpoint.