Small Business - New IRS Clarification for QBI
Looking for a great tax deduction? Proposed regulations from the Internal Revenue Service regarding the new 20 percent qualified business income (QBI) deduction were issued August 8th. They attempt to clarify the definition of QBI and “Specified Service” businesses, how phase out rules can reduce or eliminate QBI deductions and an anti-abuse rule designed to prevent separating out parts of otherwise disqualified business.
Often referred to as a deduction for pass-through businesses, let’s be clear. These rules apply to owners of sole proprietorships, partnerships, trusts and S corporations allowing them to deduct 20 percent of their QBI.
Those who earn less than $100 if single, or $300 for a married couple, can take full advantage of the 20% deduction. However, the new QBI rules phase out the deduction for high-income “Specified Service” businesses. These include lawyers, accountants, doctors, consultants, and financial advisors. In these cases, the tax break fully phases out if they earn more than $207,500 if single, $415,000 if married filing jointly.
S corporations exclude reasonable compensation to owners when calculating QBI. The same applies to guaranteed payments paid to partners. Taxpayers may claim the QBI deduction regardless of whether or not they itemize or claim the standard deduction.
The rules regarding QBI can be quite complex and everyone’s situation is unique. Please consult your tax professional to determine how you can best take advantage of the new proposed regulations.