There is a significant deduction available for partnerships, S corporations, and sole proprietorships. And many taxpayers are missing out. In fact, the IRS reported that 900,000 taxpayers qualified for this deduction in 2018, but did not claim it. Are you one of them?
What is the QBI deduction?
The qualified business income (QBI) deduction was introduced as part of the Tax Cuts and Jobs Act in 2017. Also known as Section 199A, it first appeared on 2018 returns and will continue until 2025. It allows owners of pass-through entities-- S Corps, partnerships, and sole proprietorships to deduct up to 20 percent of business income plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.
The REIT/PTP component of the deduction refers to the dividends produced by an REIT, a company that owns, operates, or finances income-producing properties or the income resulting from publicly traded partnerships (PTP).
Who is eligible for this deduction?
The deduction is available to business owners, regardless of whether they itemize deductions or take the standard deduction. All taxpayers with business income should investigate whether they can claim it on 2019 returns. Anyone who missed the deduction in 2018 can also file an amended tax return.
Are there limitations?
Because it only applies to “individuals” and not corporations, there are limitations to the deduction. Eligibility is determined by both type of business and amount of income, and limitations differ for the QBI and the REIT/PTP components.
The deduction does not include:
- Wages paid to an S corporation owner
- Business income earned outside the US
- Capital gains or losses
- Dividends
- Interest income
- Self-employment tax deductions
There are limitations for owners of specified service-based businesses, which include but are not limited to accountants, financial advisors, investment managers, consulting firms, professional athletes, law firms, and medical practices. For these types of businesses, the owner’s personal taxable income comes into play.
The business owner’s personal taxable income determines eligibility for the QBI deduction and must fall below specific amounts defined by the IRS. Amounts between $160,700 to $210,700 for single filers and $321,400 to $421,400 for joint filers are subject to limitations or may not qualify.
Don’t miss out!
This deduction can get quite complex, but a qualified tax professional can guide you through the steps needed to utilize this tax incentive. If you qualify for the QBI deduction, call Rodefer Moss today. We can answer your questions and help you take full advantage of this and other available tax benefits. 