Tax Reduction Strategies
IRS-Approved Plans and Regulations
Compliance and Legitimacy: The Designer DB Plus® Strategy operates within the boundaries of IRS-approved plans and regulations. This means that it adheres to all legal requirements, ensuring that the tax benefits it offers are legitimate and defensible in case of an audit.
Flow-Through Income Reduction
Flow-Through Entities: These are business structures where income “flows through” directly to the owners or investors without being subject to corporate income tax. Common examples include S-corporations, partnerships, and sole proprietorships.
Income Reduction: The strategy focuses on reducing the taxable income that flows through to the business owners. The business can make contributions that lower the overall taxable income by employing certain retirement plans, such as a defined benefit plan (hence “DB” in Designer DB Plus®). These contributions are deductible for the business, thereby reducing the income that flows through to the owners.
20% QBI Deduction Under Section 199A
Qualified Business Income (QBI): Section 199A of the Tax Cuts and Jobs Act allows eligible taxpayers to deduct up to 20% of their QBI. QBI generally includes the net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business.
Maximizing the Deduction: By reducing flow-through income via contributions to a defined benefit plan or similar IRS-approved strategies, taxpayers can potentially lower their taxable income to levels that qualify for the full 20% QBI deduction. This is particularly beneficial for higher-income individuals whose ability to claim the QBI deduction might otherwise be limited or phased out.
Specific Benefits of the Designer DB Plus® Strategy
Tax Savings: The primary benefit is the potential for significant tax savings through income reduction and the QBI deduction.
Retirement Planning: By contributing to a defined benefit plan, business owners reduce their current taxable income and set aside substantial funds for retirement. This dual benefit enhances both current financial efficiency and future financial security.
Customized Approach: The “Plus” in Designer DB Plus® suggests additional customization beyond a standard defined benefit plan, potentially incorporating other tax-advantaged strategies or tailored financial planning components to meet each business owner’s unique needs.
Strategic Implementation
Professional Guidance: Successfully implementing the Designer DB Plus® Strategy requires careful planning and the guidance of tax professionals who understand the intricacies of IRS regulations and how to structure the plan to maximize benefits.
Continuous Monitoring: The strategy likely requires ongoing monitoring to ensure that it continues to meet IRS regulations and that the business’s financial situation is optimized as tax laws or business conditions change.
In summary, the Designer DB Plus® Strategy may reduce taxable flow-through income for business owners, enabling them to potentially qualify for the 20% QBI deduction under Section 199A while simultaneously contributing to a tax-advantaged retirement plan. This strategy offers a balanced approach to immediate tax savings and long-term financial planning.