If you are self-employed or own a small business, you’re probably looking at every possible way you can ethically and legally reduce your tax payments. While deductions for expenses like tax preparation and your home office can make a big difference, you may be missing one of the biggest deductions for small business owners – the qualified business income (QBI) deduction. Our small business accounting firm in Raleigh are sharing everything you need to know about this key money-saving deduction.
The QBI deduction allows business owners of pass through entities to deduct up to 20 percent of their qualified income.
A pass through entity is one in which you pay your business taxes through your personal tax returns. Most small businesses are pass through entities, and this includes sole proprietorships, limited liability corporations (LLCs), and S-corporations. Independent contractors also fall under this umbrella.
Not everyone is eligible for the QBI deduction and not all income falls under qualified income, so this deduction can be more complicated than it seems.
First, the amount of your taxable income is taken into account when determining if you can claim the full 20 percent deduction.
Additionally, your qualified business income is not the same as your taxable income. You can only claim a deduction on income directly earned from your business, which according to the IRS, does not include:
Basically, foreign income, investment income from dividends or capital gains, and interest income are not included.
There are also other limitations for “specified services.” Doctors, lawyers, accountants, etc. fall under this category.
Contact Carson Thorn, CPA, PLLC for small business accounting and tax services at (919) 420-0092 or fill out the form below.