Get Your 20 Percent Deduction by Calling 1-800-888-199A

The Tax Cuts and Jobs Act was passed in 2017 and will affect how lawyers and law firms in Florida plan their income taxes in 2018. The new laws will provide tax benefits for many lawyers, but they may need to restructure their finances to take full advantage of these benefits. The article explains important definitions and terminology related to the new tax laws, including W-2 wages, which are important for determining a tax deduction. It’s recommended to skim through the definitions and return to them as needed. The full article is available for those who want more detailed information. For the purposes of this article, we are talking about businesses where the income is passed through to the owners. This includes S corporations, partnerships, and individually owned businesses. It does not include regular corporations. There are specific rules about what kinds of income qualify for a tax deduction, and it’s important to understand them to make sure you get the most out of your tax benefits. The 199A deduction allows certain people or trusts that own businesses to get a 20 percent deduction on their taxable income. If a person owns an S corporation that makes $100,000 in taxable income and their total income is less than $157,500, they can get a $20,000 deduction on their taxes. This can be a helpful way to reduce the amount of taxes you have to pay. • Qualified Business Income (QBI) is the money you make from businesses where the income flows through to you, like owning a business or renting out property. If you make $100,000 from these businesses, you can deduct $20,000 from your taxes.
• But if you work in certain fields like health, law, accounting, or financial services, and you make a lot of money, you can’t get this deduction. For example, if you earn $500,000 from your business as a doctor, you can’t get this deduction. The Section 199A deduction allows certain businesses to deduct up to 20% of their income. However, it’s unclear whether different parts of a business can be grouped together for the deduction or if they need to be separate. There are also different income thresholds for different groups of taxpayers, and the deduction is limited to 20% of taxable income. For high earners like Joe and his spouse, the deduction they can get on their business income is limited. This limit is based on the wages they pay to their employees and the value of the property they use for their business. If the limit is less than the deduction they could get, then their deduction will be reduced. They can only count their share of the wages and property, not the full amount. If you make a lot of money, you have to meet certain requirements to get a tax deduction for income from your business. This includes paying your employees a certain amount and having a certain amount of property. If you make a medium amount of money, you’ll also have to meet these requirements, but they will phase in gradually as your income goes up. If you make less than a certain amount, you don’t have to worry about these requirements. John, a lawyer, has a total income of $365,000, $200,000 of which is from his law firm. He can get a tax deduction of $40,000 if his law firm pays at least $100,000 in wages. If his law firm only pays $60,000 in wages, his deduction will be less. However, if he also has income from other businesses, like a title insurance company and rental property, he could qualify for a deduction based on those incomes, as long as certain conditions are met. Watch out for some additional rules when it comes to tax planning. If you’re a partner in a business, you can’t receive W-2 wages. Consider transferring ownership to avoid this rule. If you own a business as an individual, you can’t pay yourself a wage, but your spouse could. If your business operates outside the U.S., that income doesn’t count for tax purposes. And if you’re a landlord, you may need to provide extra services to be considered a “trade or business.” Some law firms increase the rent they pay to a related company in order to lower their own income and increase the other company’s income, which may qualify for a tax deduction. However, this could lead to higher sales tax.

If a law firm pays money to a related company, it has to be a reasonable amount or the income could be reassigned to the law firm.

In Florida, only lawyers can own law firms, unlike other professions where family members and trusts can own the business and receive tax benefits.

Dentists and doctors in Florida can have a management company owned by non-medical professionals receive part of their income, and lawyers might be able to do the same if it follows the rules. If a lawyer makes less than $157,500 (if single) or $315,000 (if married), they can get a tax deduction on their income. If they make more, they might need to change how they structure their business to qualify for the deduction. It’s important to stay updated on the law because it could save a lot of money. Partnership payments don’t have to be guaranteed to be considered guaranteed payments, which can be confusing. There are different tax rules for different types of income and deductions, and these can get complicated. Some tax laws have specific names and numbers, like I.R.C. §199A(f)(1)(C) and I.R.C. §1202. There are also specific rules for certain professions, like engineers and architects. The kiddie tax applies to young people’s unearned income and taxes it differently. This article discusses tax deductions for different income levels, the definition of a trade or business, and sales tax on rent in Florida. It is written by lawyers and a CPA who specialize in tax law. It was submitted on behalf of the Tax Law Section of the Florida Bar.

Source: https://www.floridabar.org/the-florida-bar-journal/get-your-20-percent-deduction-by-calling-1-800-888-199a/