Year-End Tax Planning in a Post-TCJA Environment

by Karen Stern

The second tax-filing season after the Tax Cuts and Jobs Act (TCJA) is on the horizon. Now is the time to incorporate lessons learned from the 2018 tax season into your 2019 year-end planning to take advantage of opportunities still available to small businesses.

n Defer income and accelerate expenses. This isn’t a new strategy, but it could still prove useful if you don’t expect your business to be in a higher tax bracket the next year. If you use cash-basis accounting, you could defer income into 2020 by sending your December invoices toward the end of the month. Any business can accelerate deductions into 2019 by putting them on a credit card in late December and paying it off in 2020 (subject to limitations).

n The QBI deduction. Pass-through entities can still maximize the QBI deduction before Dec. 31 in a variety of ways. If your deduction is limited by wages, you can boost your deduction by increasing wages (for example, by hiring new employees or giving raises). To increase your adjusted basis, you can invest in qualified property by year end. If the W-2 wages limitation doesn’t limit the QBI deduction, S corporation owners can increase their QBI deductions by reducing the amount of wages the business pays them.

Alternatively, If the W-2 wages limitation limits the deduction, owners might be able to take a greater deduction by increasing their wages.

n Tax credits. Some of the most popular tax credits for businesses survived, including the Work Opportunity Tax Credit, the Small Business Health Care tax credit, the New Markets Tax Credit and the research (R&D) credit. Smaller businesses may also qualify for a credit for starting new retirement plans.
n Capital asset investments. Purchasing equipment and other qualified assets has been a valuable tool for reducing taxable income for years. The TCJA further expanded bonus depreciation and Section 179 expensing, allowing taxpayers to deduct the entire cost in the current tax year. Eligible property includes computer systems, software, vehicles, machinery, equipment and office furniture.

For more information on year-end tax planning strategies for your business, please contact Debbie Vandeven, Tax Partner, at 314.983.1386 or dvandeven@bswllc.com.

Karen Stern, CPA, (kstern@bswllc.com), partner in charge, Brown Smith Wallace Entrepreneurial Services Group, provides tax and accounting services for companies ranging from start-ups to $20 million in revenue.