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2017 Tax Act Creates Opportunity for Small Business Defined Benefit Plans

A new Section 199A of the 2017 Tax Act passed by Congress in December of that year enables small business owners--especially sole proprietors, subchapter S corporations, and partnerships--to get up to a 20 percent deduction of qualified business income if they have total income below certain thresholds.  The Treasury Department recently issued its first set of proposed regulations regarding this new section, and some of the methods that had been offered in the market, such as what was known as "crack and pack," were deemed abusive.

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That left small business owners searching for allowable ways to reduce their taxable income below the thresholds. Lo and behold, an old idea resurfaced: create defined benefit pension plans for the owners and their employees. These old-style plans have many newer variants, all of which are allowable under the Tax Code and existing regulations, and which often tend to enable the small business owner to make signficant dollar contributions (the bulk of which will benefit that owner) while at the same time providing a good benefit for their employees at a low cost.  Best of all, it can reduce the business' taxable income below the Section 199A threshold in order to enable the new qualified business income deduction of 20 percent.

If this is of interest, please don't hesitate to contact your Kushner & Company account manager for more information.

Posted on August 16, 2018 by Gary B. Kushner, SPHR, CBP, President and CEO

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