Learn how to obtain additional savings on your taxes by taking advantage of Section 199A deductions.

Are you a small business owner or involved in a real estate venture? If so, you may be wondering whether it would be more advantageous for your business to operate as a partnership or an S corporation. Well, here's some good news for you - by changing your accounting period from a calendar year to a fiscal year, you may be eligible for an extra year of Section 199A deductions. This could bring in some significant tax savings for you, especially if your business is successful. So, it's definitely something worth considering.

But before you make any changes, it's important to seek the help of a tax accountant. They will be able to guide you through the process and ensure that everything is done correctly. You also need to plan ahead and make sure that you set up the initial fiscal year accurately. The potential tax savings from this extra year deduction are quite substantial, so it's definitely worth putting in the effort.

Now, it's important to note that the Section 199A deduction is set to end for most taxpayers in 2025. However, this is mainly because most small businesses and investors use a calendar year for their accounting. But, did you know that you can actually use a fiscal year instead? This is something that a lot of partnerships and S corporations do not realize. By using a fiscal year that starts on December 1 and ends on November 30, you can potentially get an extra year of deductions.

So, here's the strategy - start a new partnership or S corporation and adopt a fiscal year. Or, if you already have an existing partnership or S corporation, try to change the fiscal year. Let's say, for example, that your fiscal year starts on December 1, 2025 and ends on November 30, 2026. This means that you will be able to claim Section 199A deductions on eleven months of business income earned in 2026. Sounds pretty good, right?

But how does this work exactly? Well, the process involves filing some paperwork with the IRS. The specific paperwork you need to file will depend on the method you use to establish your fiscal year. For most new businesses, the simplest way is to file a Form 8716. This needs to be done before establishing another taxable year. For existing partnerships or S corporations, a Form 1128 may be necessary, especially if your business shows seasonality in its gross receipts.

It's important to take action now and talk to your accountant about this strategy. Given the current shortages of accountants and delays at the IRS, waiting too long could mean missing out on this opportunity. Remember, the potential tax savings from an extra year of Section 199A deductions can be quite significant. For example, someone with a business income of $1,000,000 could save up to $80,000 in federal income taxes. That's definitely not something to overlook.

However, this tactic does come with some risks. Firstly, Congress could potentially change the law and terminate Section 199A earlier than 2025. This would render this strategy useless. Additionally, if the IRS audits your business or there are any ongoing legal proceedings, this could also affect your ability to change the fiscal year in time.

So, if you're a tax accountant looking into this strategy, make sure to brush up on the workings of Sections 199A, 442, and 444. This will help you guide your clients through the process. And if you're a taxpayer, don't hesitate to reach out to your accountant for help. They will be able to handle the paperwork and ensure that everything is done correctly. And if you don't have an accountant, our firm may be able to help you with this process.

It's important to note that if you want our help, please reach out to us using the contact form instead of calling. In your query, make sure to mention whether you have filed your first partnership or S corporation tax return, what accounting software you use, and whether your business has a high season during certain months. We are happy to offer consultations and may also be able to take on a limited number of fiscal year change engagements. So, don't wait too long and miss out on this opportunity.

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