QBI Income

How A QBI Deduction Can Help You

Business Finance

Qualifying for the Qualified Business Income Deduction

By Beth Blecker

Beth BleckerThe QBI deduction is 20% of qualified business income. Consider that a married professional filing jointly with taxable income up to $315,000 or an unmarried, sole practitioner with taxable income of $125,000 can likely claim the full 20% QBI deduction.

A qualifying service business includes any enterprise that predominantly concerns the performance of services in health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees. Engineering and architecture do not qualify for the QBI deduction.

“The QBI deduction
has the potential to lower tax liability.”

A critical strategy may be to identify opportunities that may be able to reduce income of your small business. One strategy is to reduce personal income by increasing qualified retirement plan contributions. Keep in mind that QBI includes all income, including that from dividends and long-term capital gains. Tax-free bonds, life insurance and annuities may be able to provide a means for one to shift assets from dividend-paying stocks to help meet QBI limits.

Donor Advised Funds

Donor-advised funds (DAFs) are growing in popularity thanks to the new tax code. DAFs can be used to provide an instant tax deduction for the year in which the donation is made. The proceeds can be distributed at a later date. Cash, stocks or non-publicly traded assets such as real estate can be contributed to a DAF in exchange for a tax receipt and an immediate deduction.

Similarly, business owners over age 70 ½ should consider qualified charitable deductions (QCDs) to not only reduce taxable income but to also avoiding Required Minimum Distributions (RMDs)

Traditionally tax loss harvesting, the selling of securities at a loss, has been used to offset a capital gains and reduce one’s tax liability. This strategy is typically employed to limit the recognition of short-term capital gains. Now it may also be able to help one meet QBI standards.

To see if you qualify for or to be referred to a tax professional who may be able to assist you, please visit:
www.easternplanning.com or contact: Susan@easternplanning.com / 845-627-8300.