The new Section 199A 20% Pass-Through deduction for business owners is probably the most confusing and complex part of the new Tax Cuts and Jobs Act of 2017; however, it has some very positive planning opportunities that could save you thousands in taxes. One such area is in retirement savings. If your business income is over the initial threshold for claiming the deduction, $157,500 single or $350,000 Married filing jointly, then you should look for ways to reduce your business income below those thresholds.

One way could be to contribute more to your 401K, SEP-IRA, Simple-IRA or even an HSA. Doing this will provide more savings benefit to you as well if it lowers your business income below the thresholds provides for up to a 20% deduction. This is a math game. If you are over the thresholds either do not get the 20% deduction or it is limited. If under the thresholds get the 20% deduction.

In certain situations the opposite is true. If you already are below the thresholds and contribute to retirement accounts you may not be getting the maximum 20% deduction. In those cases it may be worth looking at instead of contributing to your 401K, SEP or Simple, instead put those dollars in a ROTH account.

Simple, Right? No it isn’t but with effective tax planning and startegy, it can be very beneficial to you the business owner. As you can see from the short article above, there may be a lot of considerations you need to be thinking about when it comes to maximizing your 20% pass-through deduction.

There are a lot more details than the above provisions, so make sure and contact us before making tax decisions.

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