March 2019 Tax Update. Home-office deduction and QBI

by | Mar 12, 2019 | Guides, Blog, Taxes | 0 comments

In today’s tax update we will answer two questions:

  • When the Second Office in the Home Is a Principal Place of Business?
  • How to Calculate and Improve Your QBI from a Partnership?

When the Second Office in the Home Is a Principal Place of Business?

When possible, you want to claim that your office in your home qualifies as a principal place of business because of this classification

  • gives you the home-office deduction, and
  • eliminates commuting from your home to your regular office.

Current law gives you two ways to claim your office in the home as a principal office:

  • First, as a principal office under the rules that the Supreme Court finalized in Soliman
  • Second, as a principal office under the alternative after-Soliman rules, wherein lawmakers added this alternative: “… the term principal place of business includes a place of business which is used by the taxpayer for the administrative or management activities of any trade or business of the taxpayer if there is no other fixed location of such trade or business where the taxpayer conducts substantial administrative or management activities of such trade or business”

Question for you: If you have an office downtown where you spend 40 hours a week, can you claim that you have an office in your home that qualifies as a principal office if you spend only 12 hours a week working in the home office? If you said no, you are not alone. But you would also be wrong.

With the administrative or management rule, you can have your principal office in your home with 12 hours of work a week, even when you work at your other office for 40 hours.

How to Calculate and Improve Your QBI from a Partnership?

A general partner is taxed on partnership income that comes to him or her in the form of guaranteed payments and profit distributions. Profit distributions are qualified business income (QBI) for the Section 199A 20 percent tax deduction. Guaranteed payments and Section 707(a) payments are not QBI.

To increase QBI, you need to increase the profit distributions and reduce the guaranteed and Section 707(a) payments. Getting to this simple solution is not so easy; after all, this is tax law.

Two points to consider: First, are the guaranteed payments really guaranteed payments or simply a lazy man’s way to distribute profits? Second, should you use the more sophisticated Section 704 partnership allocation rules to get the results you want?

MORE ARTICLES FROM OUR BLOG

A midyear checkup with GMP CPA

July marks the midpoint of the calendar year and most often brings the hottest days of the year (especially in Charlotte!). GMP CPA looks forward to July, not only for vacations, but because in most cases we now have six months of data to look over for our clients....

Backdoor Roth IRA Opportunities Still Available After TCJA

Backdoor Roth IRA Opportunities Still Available After TCJA Good news. The Tax Cuts and Jobs Act (TCJA) did not harm the backdoor Roth strategy.As you likely know, the Roth IRA is a terrific way to grow your wealth with a minimum tax downside because you pay the taxes...

Let’s talk about Basis!

“Basis” is a loaded word for accountants. It is very much described in the same regards as “time”, in that there never seems to be enough time when it is needed most. For many S-corp shareholders, basis is starting to come into play at tax time and many are unprepared...

Pros and Cons of 401(K) Loans & The Tax Impact of a Child’s Investment Income

Are You Sure You Want To Take That 401(K) Loan? With summer headed toward its inevitable close, you may be tempted to splurge on a pricey “last hurrah” trip. Or perhaps you’d like to buy a brand new convertible to feel the warm breeze in your hair. Whatever the...

QBI walkthrough for our clients

Dear Client:Your ownership of a pass-through trade or business can generate a Section 199A tax deduction of up to 20 percent of your qualified business income (QBI). The C corporation does not generate this deduction, but the proprietorship, partnership, S...
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 accounting and taxes!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 taxes, 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 taxes. Thank you for a job well done!read more
Natalie Knight
Natalie Knight
15:35 21 Nov 18
Prusiensky CPA is up to date on technology. They handcraft a platform that works best for your company's accounting 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 Prusiensky, CPA for all of your accounting 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

How to Deduct Medicare as a Business Expense?
Extensions