walkthrough for our clients

by | Feb 6, 2019 | Blog, Guides, Taxes | 0 comments

Dear Client:

Your ownership of a pass-through trade or business can generate a tax deduction of up to 20 percent of your qualified business income ().

The C corporation does not generate this deduction, but the proprietorship, partnership, S corporation, and certain trusts, estates, and rental properties do.

The tax code says includes the net dollar amount of qualified items of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer.

Sole Proprietorship QBI

The QBI for the sole proprietor begins with your net business profit as shown on your Schedule C. You then adjust that profit as follows:

  • Subtract the deduction for self-employed health insurance.
  • Subtract the deduction for one-half of the self-employment tax.
  • Subtract qualified retirement plan deductions.
  • Subtract net Section 1231 losses (ignore gains).

Example. John has $120,000 of net income on Schedule C. He also deducted $10,000 for self-employed health insurance, $8,478 for one-half of his self-employment , and $10,000 for a SEP-IRA contribution. His QBI is $91,522 ($120,000 – $10,000 – $8,478 – $10,000).

Rental Property QBI

If you own rental property as an individual or through a single-member LLC for which you did not elect corporate taxation, you report your rental activity on Schedule E of your Form 1040. If you can claim the property is a trade or business, your QBI begins with the net income from your Schedule E.

Partner’s QBI from the Partnership

A partner may obtain income from the partnership in two ways: (1) as a payout of profits and/or (2) as a Section 707 payment (generally referred to as a guaranteed payment). The profits qualify as QBI, and the partnership profits are adjusted for the same items as for the sole proprietorship.

The Section 707 payments reduce the net income of the partnership. They do not count as QBI.

S Corporation Shareholder QBI

The shareholder in an S corporation ends with QBI calculated in the same manner as for the sole proprietor. For example, the shareholder reduces his or her QBI for the self-employed health insurance deduction.

Wages paid to the shareholder-employee reduce the net income of the S corporation but do not count as QBI.

Trusts and Estates

The rules above apply to trusts and estates. The tricky part is where to apply the rules—to the trust, to the estate, or to the beneficiary.

Takeaway

Clarity is worth a lot, and the final regulations give us clarity on what makes up QBI.

If you would like to discuss your deduction with me, please don’t hesitate to call me on my direct line at 980-237-1714.

 

MORE ARTICLES FROM OUR BLOG

The most wonderful time of the year…

The holiday’s are in full swing, which we know is “official” because the Halloween themed items are sitting side-by-side with Christmas related stuff kitsch decorations in almost every store. During this most wonderful time of the year, GP looks forward to as much...

Payroll with GUSTO!

is often a thankless task for business owners. Whether your is hourly, salary, organized, or chaos, it is still a time consuming endeavor. There are federal laws, state laws, local ordinances, and regular changes at every level. Specialized industries...

Test your knowledge about NC Sales Tax for HVAC Services

If your business involves repairs, maintenance, or installation services related to vehicles then this quiz will test your knowledge of current law. MORE ARTICLES FROM OUR BLOG

[Frequently Asked Questions] CFP (Certified Tax Planner)

Recent client question from a CFP (Certified Tax Planner) to GP : “I wanted to reach out because I have a client that has a portfolio that is 100% equity in a taxable account.  We are looking to sell out of the equity positions and redeploy the proceeds into a...

Xero and electronic payment processing options (PayPal, Stripe, IntegraPay, Square, Plooto)

and electronic payment processing optionsFor clients that will use invoices as the primary method of billing, there are quite a few options for that are better than “the check is in the mail” (spoiler alert, it never is). All of the payment processors below will...
Tina Simmons
Tina Simmons
13:38 17 May 19
This team is dedicated to their clients and committed to understanding your business and sharing their knowledge to help you succeed. I love working with these folks, they take the worry and uncertainty out of and !read more
Bravo4 Autowerks
Bravo4 Autowerks
12:55 08 May 19
Gary and his team have been fantastic for me and my business. They respond well to all my questions, are very helpful and of course keep my financials in order. Highly recommended.read more
Queen City Newborn Care
Queen City Newborn Care
15:57 02 Apr 19
I was drowning before I met Justin. He totally transformed how I run my small business and has gotten me organized in ways I didn't even know were possible. I am so grateful for his advice and suggestions! This company is worth every penny.read more
Dennis Bloomberg
Dennis Bloomberg
16:01 26 Mar 19
Unfortunately, I found GMP when my mother passed. She had a trust set up and I had no experience with one. I received excellent advice prior to filing , that allow for the transfer of assets with little tax implication. The tax process was simple for me, Justin took over once he had details and cleared up all question from filing our . Thank you for a job well done!read more
Natalie Knight
Natalie Knight
15:35 21 Nov 18
is up to date on technology. They handcraft a platform that works best for your company's services. We really appreciate how hands on and quick their team is when replaying to any type of correspondence. Simply put, they care and want your company to succeed.read more
Ashlyn Lelej
Ashlyn Lelej
14:39 21 Nov 18
I highly recommend Justin at , CPA for all of your and tax needs. I've been a client for over two years, and have been consistently impressed with their dedication to helping my business grow and be financially successful. His advice is invaluable. Thank you!read more
Bobby Nguyen
Bobby Nguyen
22:23 20 Nov 18
My partner and I started our very first small business last year. Justin has been a blessing to us. Being new at all of this, we didn’t understand much of how business taxes work. Justin explained and answer all of questions that we have. He took care of everything for us throughout the year and have made life so much easier for us. I couldn’t have asked for a better CPA. Highly recommended!read more
Next Reviews

CATEGORIES

Depreciation options
Why your kids are model employee’s?