Another strategy is to adopt a defined benefit pension plan. Under the right circumstances, a business may be able to contribute six figures to the owner’s retirement, which is an expense that reduces the business’s income, while making modest contributions for the workers.
But pensions have pitfalls, cautions Lem Moorman, a CPA and owner of Qualified Pension Services Inc. in Littleton, Colo. “Employers don’t understand that with a defined benefit plan they have to make the same contribution every year, within a narrow range, for at least three years,” Moorman says.
More To The Story
The Tax Cuts and Jobs Act raced through Congress in a mere seven weeks, CPA Anthony (Tony) Nitti reminded accountants in a recent teleconference. Given the frenetic pace, it’s inevitable that the law contains “mistakes and big gaps in guidance ... in spades,” according to Nitti, a partner at WithumSmith + Brown in Aspen, Colo.
For example, Congress intended interior improvements to a nonresidential building, such as a restaurant, to be eligible for 100% bonus depreciation. But a drafting error in the law instead requires such improvements to be languidly depreciated over 39 years.
Nitti predicts that desperately needed technical corrections to the law won’t come until after the midterms. That’s unfortunate for clients, he says, because even if the fixes are allowed retroactively, “it’s kind of pointless if the uncertainty prevents taxpayers from moving forward with the improvements that they had planned.”