Maximizing Tax Savings with Retirement Plans for Business Owners Under Section 199A

Business owners have a limited time to take advantage of valuable tax savings through retirement plans before the Section 199A deduction expires in 2025. The 20% deduction for qualified business income can significantly reduce tax liability for owners of pass-through entities, but income restrictions limit the availability for higher-earning service businesses.

To maximize the value of the deduction, business owners should consider reducing their taxable income below the threshold levels. Retirement plans such as 401(k) plans, SEP-IRAs, defined benefit plans, and cash balance plans can help business owners achieve this goal. Employers can contribute up to $69,000 to their retirement plans in 2024, with catch-up contributions available for those over 50.

For business owners with higher income levels, cash balance plans offer significant deductions from taxable income. These plans are more complicated to administer but can provide substantial benefits, especially for businesses with few employees. Contribution levels are based on age, with maximum contributions reaching up to $409,000 for 70-year-olds in 2024.

With the Section 199A deduction set to expire in 2025, business owners should act quickly to take advantage of these retirement plan options to reduce their taxable income and maximize tax savings. Don’t miss out on this opportunity to save on taxes while funding your retirement.