Changes to the Depreciation Bonus Small Business Owners Need to Know
October 16, 2018S-Corp Tax Changes Could Mean a Reconsideration… to C-Corp
November 20, 2018QBI Tax Deduction Offers New Savings for Small Business Owners
If your small business operates as a sole proprietor or through partnerships, S corporations, trusts, and estates, the new Qualified Business Income (QBI) deduction could mean you can now deduct up to 20% of specific types of business income. Thanks to the Tax Cuts and Jobs Act, the QBI deduction may also be claimed on certain dividends. Eligible business owners, those whose 2018 taxable incomes fall below $315,000 for joint returns and $157,500 for other taxpayers, need to know a few things in order to use this deduction.
How the QBI deduction helps small business owners:
- The QBI deduction applies to one of three options in order to qualify:
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- Business income
- Real estate investment trust dividends
- Publicly traded partnership income
- Qualifying business income for this deduction is the net amount of qualified items of income, gain, deduction, and loss connected to a qualified U.S. trade or business. Only items included in taxable income are allowed to be counted.
- The deduction is available to eligible taxpayers, whether they itemize their deductions on Schedule A or take the standard deduction.
- Generally, the equal to or the lesser of these two amounts will be deductible:
1. 20% of qualified business income, along with 20% of qualified real estate investment trust dividends and qualified publicly traded partnership income
2. 20% of taxable income computed before the qualified business income deduction minus net capital gains - The deduction may be subject to additional limitations or exceptions based on the type of trade or business you run. It may also include the taxpayer’s taxable income, the amount of W-2 wages paid by the qualified trade or business, and the unadjusted basis immediately after acquisition of qualified property held by the trade or business.
- If your income was earned through a C corporation or by providing services as an employee of a C corp, it will not be eligible for the deduction.
You can find details concerning QBI Tax Deduction rules by visiting the Qualified Business Income FAQ page on the IRS website.
