The 2018 year is rapidly coming to an end. If you have business owner clients who need a tax deduction for the 2018 calendar year, a Qualified Plan is something to keep in mind.
Contributing to a qualified plan would allow the business to accumulate assets for retirement on a tax-deferred basis and take a tax deduction in 2018! But the Internal Revenue Service has specific rules on when these plans must be established by in order to qualify for the deduction. To establish a plan for 2018, the business must have a plan document completed, signed and dated by December 31st. If an IRS approved plan document is not in place by year end, then the business does not have a qualified plan for 2018. If the business does not have a plan, they cannot make a contribution to receive a tax deduction.
Implementing a qualified plan may additionally allow the business to qualify for a 199A deduction. For pass through entities (such as a Partnership, LLC, Sole Proprietor, S Corporation), Section 199A of the Tax Reform Act of 2017 may allow as much as 20% of the business’ qualified business income (QBI) to be deducted from their personal income. However, there are taxable income thresholds imposed for business owners to qualify under 199A. For the owner of a pass through business entity, contributions to a defined benefit plan can help to reduce the taxable income in order to take advantage of the 199A deduction.
To learn more about how Qualified Plans and Section 199A could help your business owner clients save taxes, please review the information provided on the Advanced Markets website at NationalLife.com.