PPB August 2018

generate a tax liability of $36,409. However, under TCJA, Stephanie saves $12,340 in federal taxes. Tax Planning Is Key Right Now It is powerful howmuch small-business owners and self- employed individuals can save if they do tax planning—sooner than later. Even if Stephanie was over the limit, with tax planning, she could still get her taxable income down below the anti-abuse limit, allowing her to reap the benefits of IRC §199A. Tax planning for self-employed individuals might take into account planning through their business with equipment or other purchases, or it can be on the personal return with retirement planning, charitable contributions and other opportunities allowable through the TCJA legislation. In the example with Joe and Mary, a distinction was made betweenW-2 wages and 1099 contract labor. Although it is all tax deductible as labor on the corporate tax return, only theW-2 wages are accounted for in the QBI deduction computation. Worker classification has always been problematic for the IRS, but IRC §199A provides the opportunity for the IRS to somewhat alleviate the worker misclassification problem that has plagued the government for many decades. Be aware that laws are easilymisinterpreted, and many businesses inadvertently misclassify their employees as independent contractors. While a discussion on this topic is beyond the scope of this article, in-depth information on how to classify your workers properly can be found inmyMarch 2018 article “Get it Right the First Time—Independent Contractor vs Employee Status” at pubs.ppai.org. It is clear that the TCJA laws are favorable for millions of small- and mid-size businesses and self-employed individuals. TCJA also created IRC §1400Z—known as the Opportunity Zone Fund— which allows for the deferral of capital gains for a period of five or seven years, and a step-up basis to fair market value on the new asset, allowing investors to benefit from real estate investments. IRC §1400Z provides tax credits if you start a new business in an area designated as an Opportunity Zone Fund. Effective June 14, 2018, the U.S. Treasury approved Opportunity Zone Fund areas in every state, including U.S. territories. Last year, at the request of Sen. OrinHatch (R-UT), chairman of the Senate Finance Committee, I submitted an 11-page tax reformproposal. I specifically expressed to Congress that it needs to provide lower capital gains rates to real estate investors who acquire properties in inner cities and poor communities that need to be revitalized, and that it should also provide tax credits to small businesses that hire new employees located in communities across the country that need to be revitalized. Maybe I was ahead of my time—the recommendations resulted in what now resembles the Opportunity Zone Fund. As you can see, the TCJA is anything but simple. For millions of Americans who work as W-2 employees and are not homeowners or investors, the TCJA will simplify their tax return and allow them to self-prepare it. However, for the millions of taxpayers who are small- business owners, self-employed, real estate investors or have passive income that qualifies for the 20 percent QBI deduction, tax preparation and planning just got more complex than it has ever been. I encourage you to begin tax planning by early fall and consult an experienced and knowledgeable tax professional to provide you with proper tax planning. As the saying goes, you get what you pay for—and this is true nowmore than ever, as it pertains to tax preparation. Andrew G. Poulos, EA, ABA, ATP is principal of Poulos Accounting & Consulting, Inc., in Atlanta, Georgia, where he works with individual and business tax clients and represents clients before the IRS and state labor agencies. An entrepreneur, tax analyst and real estate investor, Poulos is also an author and national speaker and regularly appears on ABC, CBS, NBC and Fox News. He has been referenced as a tax expert in published articles in TIME, Forbes, USA Today and U.S. News &World Report and was interviewed on President Trump’s tax policies. He is the producer of the QuickBooks Ultimate Lesson Guide DVD Series and author of various tax articles. andrew@poulosaccounting. com; www.savvytaxguy.com , 1-888-9-POULOS (976-8567). Copyright © 2018 Poulos Accounting & Consulting, Inc. and Poulos Productions LLC. This article may not be copied, reproduced or repurposed in part or in its entirety without the written consent of the author AndrewG. Poulos and Poulos Accounting & Consulting, Inc. and Poulos Productions LLC. This article is for information only and is not intended as tax advice. | AUGUST 2018 | 67 THINK