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IRS Updates Affect Your 20% QBI Deduction
It's January 2020, so you (or better yet, your accountant) should be busy preparing your 2019 tax returns and starting to plan for tax year 2020. As I wrote about before, the Tax Cuts and Jobs Act (TCJA) went into effect in 2018, establishing a 20% qualified business income (QBI) deduction for passthrough businesses (sole proprietorships, LLCs, S-corps). The QBID lets you deduct 20% of your qualified business income, on top of the specific business deductions you can claim on your Schedule C or corporate tax return. However, the IRS considers therapy practices and other professional-service businesses as specified service businesses (SSBs), limiting your ability to claim the 20% deduction. For such businesses, the law established thresholds on taxable income where the 20% deduction begins to phase out, and limits beyond which it cannot be claimed at all. In a bit of welcome news, the IRS has updated these limits for 2019, and again for 2020. Here's how this could affect your taxes.
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A Year In: 9 CPA Tips on How the New Tax Law Can Save You Money
It’s been just over a year since the Tax Cuts and Jobs Act (TCJA) went into effect, establishing a 20% deduction on so-called qualified business income for passthrough businesses (ones where the income is taxed through your personal tax return). Since most therapy practices are set up as such passthrough entities, you can almost certainly take advantage of this 20% deduction as you work on your 2018 tax return. We certainly plan to :). Early last year, I wrote a short Q&A about how the TCJA would affect your private therapy practice. However, now that it’s been in effect for a full tax year, I interviewed our CPA to find out what they learned over the past year on the ways a therapist in private practice could benefit from the new tax law.
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Categorizing Your Business Expenses Wrong Can Cost You
A therapist I coach was making a couple of mistakes in how she categorizes her business expenses, which would cost her hundreds of dollars a year. Here’s what I suggested she do, which should put a nice chunk of change in her pocket. If you’re making the same mistakes, my advice may do the same for you.
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Are You Leaving Money on the Table?
If like me you live in a high-tax state, you’re suffering the huge impact of the new $10,000 limitation on deducting state and local taxes plus property taxes. This means you probably get to keep just slightly more than half of the last dollar of your income! Now I get that reading about taxes is about as delightful for most of us as going to the dentist for a root canal job, but if you’re not diligent about maximizing your business deductions, you’re leaving a ton of money on the table which will be even more painful. So, grit your teeth (bad pun intended) and read on to avoid the pain of needlessly paying more taxes than you must…
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What Does the new Tax Law Mean for Your Therapy Practice
The US tax code is infamous for its complexity, and the 2017 Tax Cuts and Jobs Act (love it or hate it) makes things even more complicated than before for therapists in private practice. Does the new 20% deduction apply to therapy practices set up as sole proprietorships? LLCs? PLLCs? S-corps? Is a therapy practice considered a Specified Service Business? If it is, does this mean you don’t get the 20% deduction? Does the 20% deduction apply to all your income from a pass-through business? What is a pass-through business anyway? Since my wife is a therapist in private practice and I’m a consultant in private practice, I’ve been researching all these questions and more, and want to try and make sense of this mess for all of us. Based on that research, and vetted by my own CPA, here are the most important implications for your therapy practice in just seven questions and answers.
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Avoid Tax-Time Sticker Shock
Does writing checks for taxes out of your personal account feel like the government is violating your personal finances? For me, once money is in my personal account, I want to know that I can count on it to pay for the mortgage, groceries, and yes, even the occasional vacation. I don’t want to ever write a check to the US Treasury and realize that I just emptied out my checking account so I need to scramble to cover our expenses. Here's how I guided a client to address these concerns.
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Choosing the Right Business Entity Type
Business entity? Really? Don’t I have more urgent and important things to deal with? That would have been my response when I started my first small business. The problem with that response is that when you start a business, you don’t get to not choose a business entity type. Either you choose it yourself, or it’s chosen for you by default.
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