Qualified Business Income Deduction clip 4 1 1 planning you say okay what about planning why is that important all of us know that to ative leaf but let’s see what Treasury has to say about it what Treasury says is this is something they call behavioral, responses and when they do all these projections this is going to cost taxpayers ten point seven billion this is going.
To cost taxpayers five point three billion they’re assuming no behavioral responses but they, know that some clever taxpayers and their clever advisers are going to do some tax planning that’s what Treasury calls, behavioral responses we’re going to do tax planning to cut the effect of the wage limit to, cut the effect of the property factor to cut the effect of the net ordinary income limit and we’re going to save billions of dollars Treasury thinks they, don’t know exactly how much but they think that, the true cost of this is going to be billions higher because clever tax advisers like like you who are taking the time to. Watch this course and me spend all the time going through.
The regs that we are going to help save our clients money because we’re going to help them affect behavioral responses so let’s talk about overall planning. Cubed phase-outs let’s talk about general ideas and it really planning breaks, out into two different areas non SST be income and SST be income we already talked about a planning idea if you’re limited by queue bills if you’re limited by net ordinary income as.
You got the net ordinary income limit again maybe you hold off no pension, contribution that would be crazy this year let’s double up next year when incomes a, little higher let’s try to accelerate income and defer deductions in the year when we’ve got a net ordinary income limit for some clients there. Is an enormous amount of planning steak and caviar taxpayers there the mo. They’re the foremost especially state taxpayers this is where we can really earn our pay required for hamburger taxpayers if you know somebody is an amateur taxpayer there’s not going to be as much planning as.
You can do as you. Would can do yes you want to keep an eye out on the net ordinary income limit but because the wage and property rules don’t apply the planning just typically isn’t this intensive you they, don’t have to worry about TV income they don’t have to worry about the wage in property limits there’s less, planning there now we said that the planning basically breaks down between non SST B and SST, B let’s talk first about non SS TB taxpayers caviar taxpayers higher income what can we.
Do and the second part of this also applies to SST be taxpayers so here’s what we can do number one if. You’ve got a client with wage and property limits decrease income move more. Towards being a hamburger make the extra pension contribution if you’ve got a wage limit pay more wages to the owner consider a bonus to the shareholder employee as long as, it doesn’t exceed limits of reasonable compensation within the wage and property limit course we cover.
That in depth we talk about different planning strategies for paying out bonuses basically to shareholder employees consider converting independent contractors to w2 employees we’ve, most of us have some clients where they’re treating workers as independent contractors giving form 1099 and we’re pretty convinced they’re, employees this might be a nice. Gentle way to nudge your client into treating them as employees hey did you know if you, treat them as employees you can get the qubit it’s one little tiny more carrot plus they can cut.
Exposure in the case of a payroll tax audit in addition to decreasing income and paying more wages if you use the property factor that’s 25 percent of wages plus two and a, half percent of property maybe buy property before the end of the year tax. Cuts and jobs tax tax cuts and Jobs Act tells us buying property is not a. Bad thing if you’re subject to the wage and property rules if you’re a higher income taxpayer and you’ve got a significant amount of, property in the business also by the way you could get a double whammy of your own here because you could also use that bonus depreciation to drive down that, that that total taxable income number if you’re an SST bee.
It’s a different game SST be you can you can do wage and planning wage and property planning if you’re subject to that phase out as well. If you have lots of wages or lots of property and you, don’t have a wage and property issue really all you’re looking at doing is trying to get some kind of a cube in the current year and that, basically means getting out of the caviar.
Territory and so essentially you might try to defer income or accelerate deductions make pension contributions buy property and bonuses but this is a one or two year, game the income that you defer to next year becomes taxable income next. Year and it creates a problem in that year the best you can hope to do here I think is on a year, to get the cubed and to use something called a bunching strategy and what, a bunching strategy is you try to get more income one year and less the next so year one you, pull a deductions back in you buy office supplies you buy equipment you fund the pension contribution and you get below the caviar level you’re – you say okay I’m not going to get the cube it, anyway this year I’m going to try to build early drive up my taxable income not buy office equipment or supplies, that that’s possible not fund the pension full-bore and I’m Way over the four hundred and fifteen thousand that year. The, year after that I Drive it back down get under the four hundred and fifteen the year after that I let it inflate up and I don’t get the cubed at least two, out of those four years I did get.
The cubed that’s what’s called a bunching strategy realize though that the definitions of hamburger and caviar and steak they’re not static people change categories from year to year most hamburgers will always, be hamburgers I’ve been a hamburger almost my whole life I’m not going to be a hamburger this year because. We sold a rental property and so the second and I told my wife I did not want to sell that, rental property I said we’re going to lose the cubed for most of our income she was heedless of the, tax planning she just wanted that thing off our backs, we sold it we went from being hamburger taxpayers to caviar taxpayers as quick as you, can say I think lickety split is that how that expression goes so they can change and so some and here’s the danger in this if you’re talking to your client, your client calls up hey I’m thinking of selling my Microsoft stock I’m going to have a hundred thousand. Dollars gain how much tax am I going to have to pay, on that historically.