Insight

10 Fact: Pass-Through Deduction for Qualified Business Income

10 Fact: Pass-Through Deduction for Qualified Business Income | Tax Preparation in Alexandria | Weyrich, Cronin & Sorra

Are you eligible to take the deduction for qualified business income (QBI)? Here are 10 facts about this valuable tax break, referred to as the pass-through deduction, QBI deduction or Section 199A deduction.

  1. It’s available to owners of sole proprietorships, single member limited liability companies (LLCs), partnerships and S corporations. It may also be claimed by trusts and estates.
  2. The deduction is intended to reduce the tax rate on QBI to a rate that’s closer to the corporate tax rate.
  3. It’s taken “below the line.” That means it reduces your taxable income but not your adjusted gross income. But it’s available regardless of whether you itemize deductions or take the standard deduction.
  4. The deduction has two components: 20% of QBI from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust or estate; and 20% of the taxpayer’s combined qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership income.
  5. QBI is the net amount of a taxpayer’s qualified items of income, gain, deduction and loss relating to any qualified trade or business. Items of income, gain, deduction and loss are qualified to the extent they’re effectively connected with the conduct of a trade or business in the U.S. and included in computing taxable income.
  6. QBI doesn’t necessarily equal the net profit or loss from a business, even if it’s a qualified trade or business. In addition to the profit or loss from Schedule C, QBI must be adjusted by certain other gain or deduction items related to the business.
  7. A qualified trade or business is any trade or business other than a specified service trade or business (SSTB). But an SSTB is treated as a qualified trade or business for taxpayers whose taxable income is under a threshold amount.
  8. SSTBs include health, law, accounting, actuarial science, certain performing arts, consulting, athletics, financial services, brokerage services, investment, trading, dealing securities and any trade or business where the principal asset is the reputation or skill of its employees or owners.
  9. There are limits based on W-2 wages. Inflation-adjusted threshold amounts also apply for purposes of applying the SSTB rules. For tax years beginning in 2021, the threshold amounts are $164,900 for singles and heads of household; $164,925 for married filing separately; and $329,800 for married filing jointly. The limits phase in over a $50,000 range ($100,000 for a joint return). This means that the deduction reduces ratably, so that by the time you reach the top of the range ($214,900 for singles and heads of household; $214,925 for married filing separately; and $429,800 for married filing jointly) the deduction is zero for income from an SSTB.
  10. For businesses conducted as a partnership or S corporation, the pass-through deduction is calculated at the partner or shareholder level.

As always, please do not hesitate to call our offices for additional information and to speak to your representative about how this could affect your situation.

 

© 2021

 

Related Insights

The tax consequences of employer-provided life insurance | quickbooks consulting in alexandria va | Weyrich, Cronin & Sorra

Tax Prep, Planning & Strategy

The tax consequences of employer-provided life insurance

If your employer provides life insurance, you probably find it to be a desirable fringe benefit. However, if group term life insurance is part…
Selling your home for a big profit? Here are the tax rules | cpa in bel air md | Weyrich, Cronin & Sorra

Tax Prep, Planning & Strategy

Selling your home for a big profit? Here are the tax rules

Many homeowners across the country have seen their home values increase in recent years. According to the National Association of Realtors, the…
Guaranteeing a loan to your corporation? There may be tax implications | business consulting and accounting services in harford county | Weyrich, Cronin & Sorra

Management Advisory Services & Business Consulting

Guaranteeing a loan to your corporation? There may be tax implications

Let’s say you decide to, or are asked to, guarantee a loan to your corporation. Before agreeing to act as a guarantor, endorser or indemnitor…

Connect with us

Use the form below to send us an email. WCS responds directly to all inquiries and general questions within 24 hours of posting.

This contact form is deactivated because you refused to accept Google reCaptcha service which is necessary to validate any messages sent by the form.