The Tax Cuts and Jobs Act (TCJA) instituted last year could mean substantial tax savings for many American businesses. This year, savvy entrepreneurs, business owners and certain investors in real estate can maximize deductions and save big on taxes by putting one of the best features of the new tax law to work the “aggregation rules.”
These updated rules allow taxpayers to combine their trades or businesses, rather than calculating deductions separately for each entity. By treating them as a single unit, owners can maximize deductions of up to 20% and reap potentially huge tax savings – but not all businesses or trades qualify and careful considereation must be made to determine if this will decrease or increase taxes in each particular case.
Moskowitz LLP offers three crucial questions to help determine eligibility:
- Do the entities share ownership? In order to qualify for aggregation, the same person or group of persons must own 50% or more of each trade or business, or (in the case of a partnership), must own 50% or more of the capital or profits.
- Does ownership change from year to year? Aggregation applies only to those entities where the ownership remains the same for the majority of the taxable year – including the last day of the taxable year.
- Are the entities interdependent? Taxpayers can aggregate businesses or trades which abide by at least one of the following:
- They provide products, property, or services that are the same or customarily offered together;
- They share facilities or significant centralized business elements (like personnel, accounting, legal and/ or information technology resources);
- They operate in coordination with, or reliance upon, one or more of the businesses in the aggregated group (like supply chain interdependencies).
If the answer is “yes” to any of the above questions, the businesses or trades may be eligible for aggregation. Seeking help from a qualified tax attorney is an essential next step, as aggregation may not be the best solution for every unique situation, and many investments don’t qualify for benefits under these new rules. Qualifying taxpayers must also follow certain guidelines annually in order to qualify for (and maintain) aggregate status, and a seasoned tax attorney can help clarify these.
About the Author
Tax attorney, Steve Moskowitz, founded what would become Moskowitz LLP over 30 years ago, offering clients a full variety of services that include domestic, international, and criminal tax law representation, tax planning, and tax preparation of current and delinquent filings. Having practiced as a CPA for a “Big 8” (now “Big 4”) firm, as well as teaching tax, law and accounting in law school, graduate school and university, Steve has served as a legal analyst for top media outlets, where he appears daily on the radio. Steve knows his profession inside and out, and his message is simple: Don’t go it alone against the IRS. Passionate about helping clients navigate the complex intricacies of tax law, Steve practices as the founding partner of Moskowitz LLP in San Francisco, overseeing a growing team of accomplished tax attorneys and accountants. Visit www.MoskowitzLLP.com or call 415-394-7200 for more information about legal services, valuable tax resources, and to request a consultation.