New Pass-through Business Deduction

[USGrant1962]

I recently started a part-time consulting gig and have been trying to get up to speed on taxation of self-employment income. Aside from the long-standing issues of Schedule C business deductions (i.e., home office, office supplies, marketing, etc.), the new tax law has added a pass-through business deduction.

Kitces has just published his analysis of this new wrinkle here: https://www.kitces.com/blog/pass-th...n-rules-qualified-business-income-qbi-limits/

He provides a good analysis of why this new deduction is equitable (essentially it normalizes the new business tax rates for non-C Corp entities) and discusses some of the traps caused by the interaction of business and non-business income.

At this point I'm planning on operating as a sole proprietor consultant in my own name. I don't expect to approach any of the income thresholds, so this looks all good for me.

For folks with part time consulting, real estate and other business income under this tax provision, I'd be interested in your plans/thoughts on how to manage/optimize this.

Regards,

USGrant1962

 

[donheff]

Excellent review which confirms my determination that DW's pseudo retirement LLC stipend will qualify.

 

[Senator]

I am expecting to pay a LOT less taxes in 2018+. I will be converting IRAs to a Roth.

I do not really see how I can optimize it further, as I should get the full 20% deduction off my net rental income.

 

[cusetownusa]

I am expecting to pay a LOT less taxes in 2018+. I will be converting IRAs to a Roth.

I do not really see how I can optimize it further, as I should get the full 20% deduction off my net rental income.

Me too...my taxable income (after all deductions, SEP IRA, 457b, 403b, etc) will be about $50,000 below my pass thru income. My plan is to do a Roth conversion of about $50,000 to maximize the 20% deduction.

 

[calmloki]

Hmm. Notice the graphic with line 42 ($4050 exemption) crossed out and suggested as the new location for the 20% QBI deduction? Have I missed something or is he hep to the exemption being removed? If so that $12k standard deduction becomes a trade for $6350 + $4050 exemption, or $10400. A whole $1600 more while losing a lot of ability to itemize.

I foresee problems with income to maximize QBI deduction. Probably do a bunch of big ticket items on the rentals to benefit their future sale price while reducing current income. Some real advantages to having wealth in the stock market where it can grow while allowing one to tailor just the income one wants.

 

[Independent]

Hmm. Notice the graphic with line 42 ($4050 exemption) crossed out and suggested as the new location for the 20% QBI deduction? Have I missed something or is he hep to the exemption being removed? If so that $12k standard deduction becomes a trade for $6350 + $4050 exemption, or $10400. A whole $1600 more while losing a lot of ability to itemize.

That is correct. A single person who had been itemizing with $10,000 of itemized deductions used to have a zero bracket amount of $10,000 + $4,050 = $14,050.
Now it is $12,000.

 

[RockyMtn]

Great article. Thanks for posting. Anyone find any on line calculators that can be used when determining pass through taxes?

This is all I have been able to find.

https://www.moneyhelpcenter.com/taxes/calculate/trump-tax-reform-calculator/#results