At the beginning of April, Covisum rolled out four new features to the Tax Clarity® software. The new pass-through deduction feature is particularly important for advisors with certain clients who own small businesses. The update allows advisors to demonstrate the impact of the deduction for pass-through income and the phase-out of the deduction under the 2017 Tax Cuts and Jobs Act.

A recent article in Financial Planning suggests that the 20% deduction for qualified business income on pass-through entities will provide substancial savings for clients. Over the next several years, small business owners could save an estimated $415 billion thanks to the new deduction. 

For clients with a lifestyle business, a business well under the threshold for the phase out, there could be opportunities to stack Roth conversions or IRA withdrawals on top of their self-employment income and pay a rate that is considerably lower than expected.

However, the pass-through deduction is complex, and financial advisors will need to proceed with caution as they navigate the new landscape for their business owning clients who fall under this umbrella.

See the full article from Financial Planning.

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