Tax Reform is Now a Reality

millions in tax savings

tax reform is now a reality.

The new tax law now applies, turning the way you file your taxes on its head. With a second look at your taxes, you may find deductions you once thought weren’t applicable to your business, additional provisions and credits for additional tax savings.

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$140,000+ 

Partnership Tax Planning for the New Qualified Business Income Deduction

We reviewed the qualified business income deduction and how it would apply to four clients. During this analysis, we determined certain cash payments made to partners were not going to be eligible for the 20% qualified business income deduction. By proactively changing their operating agreement, it made these payments eligible for the 20% deduction. This will be a tax savings which will occur each year the 20% deduction is part of the tax law, not a one-year timing difference.

Client #1

$439,836 of payments (potential fed tax savings of $32,548)

Client #2

$800,000 of payments (potential fed tax savings of $59,200)

Client #3

$516,980 of payments (potential fed tax savings of $38,256)

Client #4

$198,313 of payments (potential fed tax savings of $14,675)

$300,000+ 

Accounting Method Changes

Tax reform allowed clients to make various accounting method changes in 2018 (if eligible to do so). We had a number of clients make a change in accounting method. Generally, these were either a change to elect out of the UNICAP rules (tax capitalization of inventory) or to switch from the accrual method to cash method for tax return reporting purposes. Below are clients who made one (or both) of these elections.

Client #1

UNICAP change – $113,739 deduction ($42,083 potential tax savings)

Client #2

Cash method – $336,754 deduction ($124,599 potential tax savings)

Client #3

Cash method – $311,805 deduction ($115,368 potential tax savings)

Client #4

UNICAP & Cash Method – $68,608 deduction ($25,385 potential tax savings)
CLIENT CASE STUDIES

Advised client on how to defer tax on a gain of $1,250,000 on the sale of real estate by a like-kind exchange for land located in an opportunity zone, and then how to qualify the improvements on the land to take advantage of opportunity zone gain deferral of other gains of $2,300,000. After holding the new property for 7 years, tax on $345,000 of the gain is avoided completely and there will be no tax future appreciation of qualified opportunity zone property if held an additional three years.

CLIENT CASE STUDIES

Advised family of decedent on elections and allocations allowing client to step up the basis of partnership property (including lower tier partnerships) and allowing clients to claim additional annual depreciation deductions of $50,000 per year.

CLIENT CASE STUDIES

Advised a client on liquidation of partnership to allow one partner with high basis to sell a parcel of land with no tax while another partner (elderly and in ill health) keeps remaining land with low basis which is stepped up at death ultimately avoiding tax on a potential gain of $19,000,000.

CLIENT CASE STUDIES

Advising client on how to restructure an acquisition of a C corporation to allow for deduction of interest on acquisition loan as trade or business interest not subject to investment interest limitations.

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new tax law tips

Consider an analysis of whether you should change your entity form from a passthrough entity to a C Corporation.
Review qualified business income deduction rules and client activity to determine whether activities could be aggregated together in order to maximize the QBI deduction. We did this for multiple clients, one of which we helped save $15,351 of federal tax (this will be an annual savings).
During an analysis of a client’s WI use of credits, the play was to take bonus depreciation rather than Section 179 for depreciation purposes. The bonus depreciation is not allowed in WI, so it results in higher income in WI. However, these clients have WI credits which offsets any tax earned. Thus, they still pay $0 WI tax and save the WI depreciation deductions for future years when the credits are not available. This works well for clients who receive both the WI manufacturing credit and WI R&D credit as they have more credits than they can use.
Use of Donor Advised fund to bunch itemized deductions and maximize itemized/standard deduction over a period of more than one year.

coming soon to a computer near you

Filing your 2019 taxes will be new territory, and our specialist Jim Brandenburg has been helping businesses navigate tax reform since it was written into law. In this short webinar series, Jim will go over entity selection and review both favorable and unfavorable changes.

Don’t let potential tax savings go uncovered.

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