As tax season has arrived, Many taxpayers are looking for ways to write off as many expenses as possible. Our tax professionals and enrolled agents can help you uncover these sometimes-hidden tax benefits In & Near Bronx, NY.
In 2017, the Tax Cuts and Jobs Act (TCJA) introduced the qualified business income deduction (QBI). Also known as the 20% Pass-Through Deduction or IRC 199A deduction, QBI allows owners of pass-through businesses to deduct up to 20% of their qualified business income from a qualified trade or business.
Qualifying for the QBI deduction can be complicated. The proposed regulations rest on a tax question that has no clear answer: What is the 20% Qualified Business Income Deduction, and who qualifies for it? Instead of directly answering this question, the IRS provides a list of eligibility criteria. To qualify for the QBI deduction, an individual or entity must meet these specific criteria.
Due to the complexity of the QBI deduction, you should consult a tax expert. But in case you want to know more about QBI before your tax consultation, keep on reading.
In this article, we’ve answered some of the frequently asked questions about QBI, so if you’re wondering, Is rental income QBI? or What businesses are not QBI eligible? you’re in the right place.
Qualified business income deduction (QBI) is a type of tax deduction for small business owners and self-employed individuals that allows them to deduct up to 20% of their qualified business income on their taxes.
According to the IRS, individuals with a combined taxable income under $164,900 in 2021 and joint filers with a combined income under $329,800 in 2021 will qualify. By 2022, the single filer limit will reach $170,050, and the joint filer limit will reach $340,100.
If your business income exceeds that limit, complicated IRS rules determine whether you can claim a full or partial deduction.
You can claim the qualified business income deduction if you have “pass-through income” — which is business income that you report on your personal tax return. Among the entities that qualify for this deduction are:
A sole proprietorship
Limited liability companies (LLCs)
Profits from a business are generally considered qualified business income. W-2 wages from an S corporation or guaranteed payments from a partnership are not considered qualified business income.
If business owners’ taxable income does not surpass the mentioned thresholds, they can use this formula for calculating their individual tax returns. Assuming that the business’s taxable income exceeds these thresholds, the deduction will factor in limitations on the wages it pays to its employees and the depreciable assets it owns.
To calculate your qualified business income (QBI) deduction, you must complete your tax return. Net income must be reduced by certain non-qualified types of income, including capital gains, dividends, and non-business interest income.
The QBI deduction can be calculated using IRS Form 8995 if your total taxable income for the whole year is less than a specific amount based on your filing type. For 2021, if you have taxable income over $164,900 (single, married filing separately, head of household, or qualified widow or widower); or $329,800 (married filing jointly), you should use IRS Form 8995-A. The QBI calculation ultimately goes from the 8995-A or 8995 form to your tax return.
To see how the calculation order works, refer to the QBI Flow Chart on page 5 of the Instructions for Form 8995.
Certain types of income must be excluded from the calculation of qualified business income. If you own a business, you can count most of your net income, but you can’t include these:
QBI deductions may also be limited by the wages or salaries paid to employees, along with the cost of some recently acquired property owned by the business, called “unadjusted basis immediately after acquisition (UBIA).”
Real estate rental property owners may qualify for the qualified business income (QBI) deduction if they meet specific requirements to be considered a “trade or business.” You don’t have to participate materially in the activity of renting real estate to qualify.
Every situation is reviewed in light of all the facts and circumstances. To determine if you qualify for the QBI deduction for your real estate business, speak to a licensed tax professional. Especially if your real estate is in and near Bronx, NY, our local tax experts might be of great help.
If you’re still not sure you qualify for QBI deduction, we understand. Count on our tax experts in SCL Tax Services who’ve been helping people in and near the Bronx, Eastchester, Mt Vernon, Westchester, and Yonkers, NY. Let us take care of your taxes so you won’t have to. So, Contact our tax office in Bronx or fill the form below.
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