CALL US
(980) 237-1714
Email us
justin@pruscpa.com
Friday 09:00 - 15:00
Mon - Thu 09:00-17:00
March 2019 Tax Update. Home office deduction and QBI (Qualified Business Income)
Written by Justin Prusiensky
March 12, 2019
Estimated Reading Time: 3 minutes 15 seconds
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?
Related Articles
Tax Projections vs. Tax Planning: Why Knowing the Difference Matters
At GP CPA, we help business owners make informed financial decisions year-round—not just during “certain times” of the year.. One common point of confusion we encounter is the difference between tax projections and tax planning. While these two services are closely related, they serve distinct purposes and deliver very different outcomes.
Beyond Balanced Books: Why Client Experience Is The Bottom Line at GP CPA
Ask most accounting firms what keeps the lights on and you’ll hear “accurate numbers.” Important—absolutely. But, at GP CPA we’ve learned something simple and powerful since opening our doors back in 1996: numbers don’t refer themselves, people do. That “people” part is the client experience, and nurturing it is every bit as mission-critical as reconciling a bank feed.
Why We Use Relay Financial—And Why You Might Want to, Too
At GP CPA, we’re always on the lookout for tools that help small business owners save time, stay organized, and keep cash flow running smoothly. One of those tools? Relay Financial—and we don’t just recommend it, we use it ourselves.
Navigating the Unexpected Closure of Bench: GP CPA, P.C. Is Here to Help
In contrast to Bench, (RIP?), GP CPA, P.C. is a Certified Public Accounting firm located in the Southeastern United States. We are second generation CPAs and business advisors. We can take over for wherever it is that Bench left off and with us, you won’t experience a data hostage situation with our firm.
Don’t Panic: What to Do When You Get a Tax Notice
Picture this: You’re sifting through the mail, dreaming about coffee or a vacation, and then—bam! There it is. An ominous letter from the IRS or your state tax agency. Before you launch into a full-blown panic spiral, let’s talk through what this means and how to handle it. Spoiler alert: ignoring it won’t make it disappear.
Why Waiting Until January to Find a New CPA is Too Late
As a small business owner, managing your financial health is crucial not only for your business but also for your personal wealth. Yet, many business owners make a critical mistake—they wait until January to start searching for a new Certified Public Accountant (CPA).
Comments
0 Comments