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2019 Tax Deduction Resolutions for Businesses: 7 Ways to Win in the New Year

Posted on January 15th, 2019

Your New Year’s Resolutions to Maximize Your 2019 Tax Deductions

It’s a new year, and a new opportunity to ensure you’re taking all possible 2019 tax deductions. That’s why we put together a list of New Year’s Resolutions for business owners and independent contractors.

All of us at Robert P. Russo CPA in NYC are ensuring our clients know how the Tax Cuts and Jobs Act (TCJA) of 2017 impacts their 2019 tax deductions – and now we’re sharing that knowledge with you…

Resolution #1: I Will Ensure My Business is Set Up to Maximize 2019 Tax Deductions.

By now you’ve probably heard about how the TCJA ushered in a new 20% deduction on qualified business income (QBI) for business owners. However, you must meet certain guidelines to take that 20% on your 2019 tax deductions. Here are 7 tips to ensure your business earns the 20% QBI 2019 tax deductions.

The biggest caveat to be eligible for the 20% QBI deduction is this: your business must be set up as a “pass through” entity. That means you take the income from your business on your personal return (Schedule C). Examples of pass-through entities are sole proprietors, LLCs, S-corps, and partnerships.

However, simply being set up as one of these entities does not guarantee you can take the 20% QBI 2019 tax deductions. In fact, you could lose the ability to take ANY of the 20% QBI 2019 tax deductions.. For a real example of this, see the next resolution…

 

Resolution #2: I Will Meet with a CPA to Discuss 2019 Tax Deductions…ASAP!

Let’s say you’re a graphic designer set up as an LLC. Great, you think, I’m all set to take advantage of those 20% QBI 2019 tax deductions! In early 2020, you come see us at Robert P Russo CPA. You proudly show us your income for 2019:

“My qualified business income is $207,501 – so I’m ready for those awesome $40,500.50 QBI 2019 tax deductions!”

We’d be so sorry to burst your bubble and tell you this. You would get $0 in QBI-related 2019 tax deductions. Yes, that $40,000+ tax savings is POOF! Gone. That’s because the threshold for getting the full 20% QBI deduction is $157,500. After that number, the 20% deduction begins phasing out – at $207,500 it drops to 0%.

 

If you’d come to us earlier, we would have suggested things to preserve some of your 20% QBI 2019 tax deductions: like turning your independent contractors into employees (to reduce your QBI) – or set up an S-Corp and pay yourself a salary.

We get it. You’re focused on preparing your 2018 taxes right now. However, to get the most of your 2019 tax deductions, you should meet with a CPA or accountant right away! (Use these tips for hiring an NYC accountant or CPA. ) What you’re doing right now can impact whether you save thousands – or lose thousands – in tax dollars.

 

Resolution #3: I Will Include Home Office Expenses on My 2019 Tax Deductions.

“I’m not putting home office expenses on my list of 2019 deductions.” We hear it all the time. Our clients believe taking a home office deduction is a red flag for the IRS. This just isn’t true, if you follow these IRS rules for taking the home office deduction. A qualified CPA can help you document, calculate, and include home office expenses on your list of 2019 tax deductions. After all, including home office expenses is a great way to lower your QBI!

 

Resolution #4: I Will Look Into Hiring My Kids or Spouse

Another excellent way to lower your QBI through savvy 2019 tax deductions? Put your kids to work. No, not the toddlers. (Now, that would be a red flag for an audit!). However, child labor laws do not apply when hiring your own children. Your 10-year-old can file paperwork, right? By hiring your kids, you can reap the rewards of serious 2019 tax deductions…up to the tune of $12,000 in wages! Get 3 key benefits and 4 tips for employing your kids in 2019.

 

Resolution #5: I Will Keep Taking Clients to Lunch

Oops, lawmakers made a mistake (believe it or not). When the TCJA rules were released, lawmakers had written the Code to imply that businesses could NOT deduct 50% of business meals with clients and prospects anymore. However, the IRS has spoken in regards to 2018 and 2019 tax deductions – and it’s good news. Yes, you CAN still do business over lunch – and deduct 50% of the cost. However, if you aren’t conducting business over lunch, and the goal is simply entertaining clients? The IRS is clear: You cannot include those expenses as 2019 tax deductions.

 

Resolution #6: I Will Consider a Home Equity Loan for Business Purposes

Prior to the TCJA, you could deduct the interest from a home equity loan – no matter how you used that loan: to fix up the house, fund a child’s education, anything. When it comes to 2019 tax deductions? There are now only 3 ways of deducting home equity interest on your tax returns:

  • use the funds to improve your principal residence,
  • purchase a rental property,
  • and most importantly for you as a business owner: use the funds for business purposes!

To qualify for these 2019 tax deductions, you must use 100% of that home equity loan for a business-related purpose. It could be launching a new business, improving an existing one.

 

Resolution #7: I Will Keep a Diary (and Receipts)

You’re going to start journaling in 2019, ok? The most important factor in maximizing 2019 tax deductions is to know exactly what you’ve spent. The best way to track your expenses is in a journal, log, or diary (whatever you’d like to call it). Keep receipts. Make notes. It’s simple, really. Here’s an example of 2019 tax deductions you might have otherwise missed. Let’s say an independent contractor comes to New York three times per week and parks in a lot that costs $20 and she tips the attendee $5 each time. That’s $15 in tips per week, over $750 in tips per year! She writes both the $20 fee – AND the $5 tip – into her journal. If she had neglected to note that $5 tip, she’d lose out on $750 in 2019 tax deductions.

The one resolution you can take action on right now is the most important: call your accountant. Set up a plan to ensure you’re maximizing your tax deductions in 2019!

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