Advisors Urge Tax Planning for New Business Income Concerns

Implementing a Proactive Strategy Now Can Minimize Tax Dollars at Stake

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While some of the highly debated tax legislation changes have been omitted from the proposed tax language, there are still a few potential pitfalls and opportunities that need attention right now. KCoe Isom’s tax advisors have assessed the potential tax implications and are recommending that businesses alter year-end tax planning for new business income strategies to minimize impacts on their bottom lines. 

“We can’t stress enough the importance of meeting with your tax advisor before the end of this year in particular,” says KCoe’s national tax team lead, Scott Miller.  “There are creative ways to ensure you take advantage of expiring opportunities, as well as move things around to lessen tax impacts under the anticipated new legislation – but these calculations take time and year-end tax planning needs to start happening now.”

Top Business Income Concerns that Need Tax Reevaluation

Here are the top tax areas KCoe recommends for businesses to evaluate and strategize for BEFORE new legislation gets signed into law:

  • Application of Net Investment Income Tax to active trade or business income of certain high-income individuals
    • This provision expands the net investment income tax to cover income derived in the ordinary course of a trade or business for taxpayers with greater than $400,000 in taxable income (single filer) or $500,000 (joint filer), as well as for trusts and estates. The provision clarifies that this tax is not assessed on wages on which FICA is already imposed.
    • The amendments made by this section apply to taxable years beginning after December 31, 2021.
  • Increase in Corporate Income Tax rate and re-establishing bracket system
    • This provision replaces the flat corporate income tax with a graduated rate structure. The rate structure provides for a rate of 18% on the first $400,000 of income; 21% on income up to $5 million, and a rate of 26.5% on income thereafter.
    • The benefit of the graduated rate phases out for corporations making more than $10,000,000.
    • Personal services corporations are not eligible for graduated rates.
    • The domestic dividends received deduction is adjusted to hold constant the tax on domestic corporate-to-corporate dividends.
  • Limitation on Deduction of Qualified Business Income (QBI) deduction for certain high-income individuals
    • The provision amends section 199A by setting the maximum allowable deduction at $500,000 in the case of a joint return, $400,000 for an individual return, $250,000 for a married individual filing a separate return, and $10,000 for a trust or estate.
    • The amendments made by this section apply to taxable years beginning after December 31, 2021.

As you can imagine, there are pages of other modifications to tax proposals under this pending legislation that might impact your business. 

“The best thing you can do right now is to meet with your tax advisor to see which rule changes might impact your business – and how and when – so that you can plan to either alleviate the disadvantages or take advantage of the available opportunities,” advises Miller.

By exploring tax-savvy strategies now, businesses can help manage, defer, and reduce taxes in conjunction with making long-term financial planning decisions. 

KCoe’s government and federal affairs team, in conjunction with its national sales team, will continue to monitor legislative activities and provide updates.  Contact a KCoe tax expert to assess your tax strategy and capture all available advantages while you still can.

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