Since the introduction of the qualified business income (QBI) deduction, many business owners have been left wondering whether they qualify for it. This brief article explains who’s eligible and how businesses may take action at year end to qualify.
If you own a business, you may be eligible to take the qualified business income (QBI) deduction. (It’s sometimes referred to as the “pass-through” deduction or “Section 199A” deduction.)
The QBI deduction is available to owners of sole proprietorships, single-member limited liability companies (LLCs), partnerships, and S corporations, as well as trusts and estates. It’s intended to reduce the individual/trust tax rate on QBI to a rate closer to the corporate tax rate. The deduction is taken “below the line.” In other words, it reduces your taxable income but not your adjusted gross income. It’s available regardless of itemize deductions or standard deduction.
For 2021, if taxable income exceeds $164,900 for single taxpayers, or $329,800 for a married couple filing jointly, the QBI deduction may be limited based on your income from service-type of trade or business (such as law, accounting, health or consulting), the amount of W-2 wages paid by the trade or business, and/or the unadjusted basis of qualified property (such as machinery and equipment) held by the trade or business.
Some taxpayers may be able to achieve significant savings with respect to this deduction, deferring income or accelerating deductions at year end to confirm to the various dollar thresholds for 2021. The rules are quite complex, so contact us with questions and consult with us before taking steps.
The HoganTaylor Tax Practice
If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Tax practice, please email Tony Otto, Tax Practice Lead, at jotto@hogantaylor.com. You may also contact Denise Felber, Tax Partner, at dfelber@hogantaylor.com
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
