Tax season is once again upon us. Millions of Americans breathe a sigh of relief every year as they know their refunds will soon hit their bank accounts. However, for business owners, tax season can be stressful. Not only do they have to provide their employees with W-2s and their subcontractors with 1099s by January 31, they also have to calculate how much they owe the IRS for the year and hope it doesn’t affect cash flow too much. At Foster Financial CPA, our mission is to help businesses maximize tax savings so their money can be spent on more important things, like buying materials and building their client base. Let’s take a look at what you need to know regarding the QBI deduction.
The QBI deduction, also known as the qualified business income deduction, is a way for eligible small-business owners and self-employed individuals to deduct up to 20% of their qualified business income on their taxes.
According to the Internal Revenue Code, the definition of qualified business income is “the net amount of qualified items of income, gain, deduction and loss with respect to any trade or business.” On a broad level, it refers to the net profit of your business. However, there are a few notable exceptions, including:
• Capital gains or losses
• Interest income
• Income earned outside the United States
• Some wage and guaranteed payments made to partners and equity holders
In 2019, your total assessable income, not just your business income, can be no more than $160,700 for single filers or $321,400 for joint filers to qualify for the 20% QBI deduction. For 2020, the limits have been raised to $163,300 for single filers and $326,600 for joint filers. If you’re above this total income level, only certain types of businesses qualify for the QBI deduction and you may not qualify for the whole 20% deduction.
The QBI deduction is essentially 20% off the top of your net income on which you don’t have to pay taxes. This is a temporary tax cut from the Trump administration that may or may not last. When you’re reviewing your tax strategy this year, contact Foster Financial CPA to see how we can best incorporate this deduction into your tax planning!
To learn how the QBI deduction works, find out if you qualify for the deduction or have any of your other tax and accounting questions answered, contact the licensed tax experts at Foster Financial CPA today to schedule an appointment. Our mission is to help you save as much money as possible on your taxes, so you can spend your time and money worrying about the things that make your business run.
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