Employee Leasing

“Tax lawyers are very good at dreaming up these things,” said Indiana University Bloomington Professor Bradley Heim, an economist who studies tax policy.

A service business could also spin off an employee-leasing entity, to get around the professional service restrictions, according to Kenneth Brier, a partner at tax-planning firm Brier & Ganz based outside Boston. Employee-leasing entities tend to charge mark-up prices as a way to make a profit.

For instance, instead of paying its attorneys $200,000 a year, a law firm could pay its leasing spinoff a marked-up price of $250,000 per employee -- shifting profits from the law firm to the leasing entity. While the lawyers in the new spin-off unit would be doing legal work just like before, Brier said he believes their new employer could qualify for the deduction as an employee-leasing company.

IRS Resources

At least theoretically. Not all these strategies will work. IRS regulations could shut down some loopholes, forcing tax planners to improvise new, riskier tactics to get around the rules. The most aggressive techniques might require a legal fight with the IRS. (But don’t worry: Creative tax strategies won’t send you to prison unless you’re actually lying to the IRS.)

The agency might have trouble keeping up. Adjusting for inflation, the Taxpayer Advocate Service estimates the IRS budget has been cut by 20 percent since 2010.

The estimated cost of the pass-through deduction is $415 billion over the coming decade, according to the nonpartisan Joint Committee on Taxation. The tax break could be even more expensive if IRS regulations can’t keep gamesmanship to a minimum.

“You have to be careful. There are people out there who come up with hare-brained ideas,” said Eric Hananel, a CPA and principal at UHY Advisors. “Tax considerations are important but you can’t let a tax consideration drive a business decision.”

Not all tax planning strategies are controversial. A married doctor making $500,000 might drop her taxable income below the threshold by maximizing contributions to retirement plans and a health savings account (HSA), and strategically giving money to charities, perhaps through a donor-advised fund.