Some people love the new tax code, others loathe it. Regardless, as tax attorneys, the main thing we’ve noticed is that many folks — like retirees who start side businesses or consultancies — are simply not aware of new opportunities available under the new rules.
The 20% Pass-Through Tax Deduction
Take, for example, the new 20 percent pass-through rate. Lawmakers primarily bill it as a boon for businesses, but many retirees can also use it.
What is this magical tax deduction of which we type? The 20 percent pass-through does exactly as advertised: It allows eligible parties to lob 20 percent off their taxable income, no receipts needed.
There are, of course, parameters and limits.
For starters, the deduction can only be used by individuals engaged in certain services, such as consultancy and tutoring (we’ll dive deeper into this below). Plus, it’s much easier to claim if you’ve set up a formal business entity, like a limited partnership, LLC, sole proprietorship, or S corporation.
Who Can Claim the 20% Pass-Through Tax Deduction?
Self-employed individuals whose business is mainly dependent on reputation and skill — not selling a product — are likely to qualify. Industries that typically pass muster include health care, law, financial planning, architecture, accounting, education, editing services, and performing arts.
Income thresholds also apply. Individuals that earn up to $157,499 can deduct the full rate. The percentage diminishes on a sliding scale for people bringing in between $157,500 and $207,500. For couples, the decreasing range is $315,000 to $415,000.
Connect with a Wealth Planning and Tax Reduction Attorney
According to the Bureau of Labor Statistics, people over the age of 65 are twice as likely to be self-employed. It’s the fastest growing sector of the labor force, and members of this demographic should be leveraging the new tax code to their advantage.
Since the 20 percent pass-through deduction is still in its infancy, its parameters aren’t yet set in regulatory cement. So it’s best to work with a tax law attorney to position yourself properly for maximum benefit. Get in touch today to begin the conversation. The first consultation is on us.