There’s a lot going on in the world right now, and a lot of new platforms to look at it on, but the best policy is to focus on tasks and don’t get distracted. Since the invention of the Internet, people have become overloaded with information, and much of it is not necessarily true, or at least it’s slanted to create an opinion that has a business purpose behind it; fake news and many other ways that people can twist the truth. Meaning that you have to be very careful about taking action on something after you hear about it without a little further digging. This is especially difficult to do when people’s attention spans have shortened. The other day, I had a chance to self-reflect. When sitting at a computer, the screen was taking an extra four or five seconds to load the browser and I literally became frustrated with it. That’s not good when it comes to important matters where careful reflection is the best ingredient for a good outcome. But we’re human, so we’re also smart enough to know when we’re not being smart and to focus, so here’s what you need to focus on. Never mind the market, never mind the news, never mind the President. You have a historic opportunity to affect your own taxation outcomes, and that is not fake news. There’s no multitude of opinions, or at least very few valid opinions, about tax planning, because there’s really only one path to the outcome if you read the rules. There are certainly still gray areas in the tax code, but the things that have been changed that you must now change behavior in order to take advantage of are pretty cut and dried, so focus, focus, focus. What you need to do is understand how the new tweaks in the tax code affect you, especially certain sectors. People who will have to pay alimony after the new cutoff, people with large mortgages, people with disabled children, people with children in private schools, may be paying more tax, in some cases, much more. But…business owners, business owners, business owners. If you have any structure of business, a sole proprietor Schedule C, a partnership, an S corporation, anything that generates a profit, then you have a new term of art that you need to learn, QBI (Qualified Business Income), and you need to learn what your limits and caps might be on your QBI, depending on your industry. It sounds complicated, but it’s really not when you put it down on paper. However, you need to understand that some things you’ve done in the past may need to be slightly altered. For instance, John is an accountant and runs a very successful larger firm. He’s worked very diligently for many years and he deserves the revenue that he is enjoying now. Because he’s in a professional service, by definition under the new tax code, his QBI discount is limited to a threshold that a plumber, electrician, or a boat-builder are not subject to. He has less ability to enjoy a 20% discount on his Qualified Business Income (QBI). However, he has a gigantic marketing budget in his firm, and he has lumped those expenses previously into his business. The correct move now might be to set up a separate business that is a marketing agency. He could put himself out to other accountants as well, to show how he successfully navigated generating clients through marketing. So, he has two values. One, he could increase revenue by sharing his secret to accountants on the other side of the country and not in his own backyard, but he should consider doing that as a separate business, because that business will not have a limit on the 20% discount on his Qualified Business Income. By paying his own company to serve his primary company, he could shift some profits to a separate company, increase his revenue streams when he attracts new clients, and more importantly, keep more of his QBI. Is it illegal, unethical, or in any way wrongfully manipulative for him to take such action under the new tax code? We argue that it is not. It’s his responsibility to change his business behavior when the platform changes. Just like nobody is selling dial-up telephones anymore, sometimes things just change. Whatever structure he was under when he originated his business now needs to be altered. So, if you’re a business owner, seek a tax planner 911. Give them until after April 17th to sit down with you, after the tax season rush is over. But if you’re a business owner and you’re not sitting in the office of a tax planning company in the month of May, then you are not focusing on the right thing. Get out of your Twitter account and get to it!
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