Hardwood Floors December 2019/January 2020

BUSINESS BEST PRACTICES FINANCE

2019 YEAR-END

tips

As 2019 is wrapping up, it’s time to start thinking about a new year for your business. From a financial perspective, it’s important to start the year putting in place best practices to lower your tax liability and set up your business for a successful year. Below are a few tips that can make your life easier when tax time comes around. TAKE ADVANTAGE OF THE QBI DEDUCTION The Tax Cuts and Jobs Act introduced a new deduction called the Qualified Business Income (QBI) deduction for sole proprietors, LLCs, partnerships, S-corps, estates, and trusts. It allows business owners to exclude up to 20 percent of their qualified business income from federal income tax, whether they itemize or not. The 20 percent QBI deduction is fairly straightforward for taxpayers with taxable income below $315,000; the deduction is a flat 20 percent of flow-through income not to exceed 20 percent of taxable income. When a taxpayer’s taxable income exceeds $315,000, the 20 percent QBI deduction is limited by the greater of 50 percent of allocable W-2 wages or 25 percent of allocable wages plus 2.5 percent of the unadjusted basis of income- producing assets (UBIA). For small businesses, there’s generally not a whole lot of UBIA planning that can be done to substantially increase the QBI deduction, but we have seen significantly more planning opportunities as it relates to increasing the wage base.

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AGGREGATE BUSINESS ACTIVITIES TO GET THE MOST OF THE QBI DEDUCTION Business owners can significantly increase their QBI deduction by ‘aggregating’ the activity of interrelated, commonly owned businesses. Aggregation allows profitable businesses with little or no wages or depreciable assets that would otherwise not be eligible for a QBI deduction to utilize wages and depreciable assets of a related business to achieve the maximum 20 percent QBI deduction. LEGISLATION STILL PENDING ON QUALIFIED IMPROVEMENT PROPERTY (QIP) The Tax Cuts and Jobs Act simplified and consolidated the various leasehold categories to one Qualified Improvement Property (QIP). Due to a legislative omission, QIP was not added to the list of property with a 15-year depreciation period and is not eligible for bonus depreciation. Corrective legislation is in the works to fix this and treat QIP with a 15-year depreciation period rather than a 39-year depreciation period and be eligible

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