The Big New Tax Break For Pre-Retired Professionals
Published Tuesday, October 2, 2018 at: 7:00 AM EDT
Pre-retired dentists, doctors and lawyers as well as other independent professionals may be able save tens of thousands of dollars in income taxes annually during their peak income years under the new federal tax regulations. The new rules are complex. Here are 10 things pre-retired business owners need to know about qualifying for a 20% reduction in qualified business income under Section 199(A) of the new Internal Revenue Code:
1. Sole proprietors, LLCs, S corps, partnerships and other pass-through entities qualify.
2. Real estate and rental business income — including self-rentals — may qualify.
3. Some businesses are specified as ineligible and you may need a professional to determine if you qualify.
4. Service-business owners could get a deduction on 20% of their income, subject to income limitations.
5. A business owner with $315,000 in taxable income owes tax on only $252,000 — saving more than $12,000 of income tax.
6. If you are married filing jointly and have more than $315,000 of income, the 20% deduction is subject to a phase-out. The phase-out begins at $157,500 for single filers.
7. If you have more than $415,000 of income from the service business, the 20% deduction is eliminated ($207,500 for single filers).
8. To keep your income below these thresholds, consider contributions to a defined benefit (DB) plan.
9. DB plans require you to commit to funding a defined benefit plan instead of a defined contribution plan, making them more complex.
10. A DB plan can supercharge retirement savings while minimizing your taxable income to enable you to qualify for the 20% deduction for business owners.
© 2020 Advisor Products Inc. All Rights Reserved.
- Sidestepping New Limits On Charitable Donations
- The Truth About U.S. GDP Growth
- Another Member Of Music Royalty Dies With No Will
- Paying Off A Mortgage And The New Tax Code
- Key Facts On Deducting Medical Expenses
- Reduce Your Widow's Tax Bill Materially Annually
- Ten Things About 10-Year U.S. Stock Market Performance
- Qualifying For The New Business Owner Tax Break
- Your Alma Mater Or Your Family?
- This Is Not Your Parents' Interest Rate Cycle
- If Family Is Wealth, Then Planning Is Immortality
- Life Is Fragile, So, Please, Value Each Day As Priceless
- Everything You've Learned About Interest Rates May Be Wrong
- This First Year Under The New Law Requires Planning
- 10 Years After The Great Recession