Come tax time, the amount owed can be a bit of a hard pill to swallow for many small business owners across the country. This is why understanding and taking advantage of any and all tax breaks allowable can be hugely helpful.
Having been introduced in 2018, what is called the QBI (Qualified Business Income/) deduction is part of the Tax Cuts and Jobs Act. If you are considered a pass-through entity (S-Corp or LLC for example/) then you may qualify and therefore be able to deduct 20% off of your income.
Not all businesses are eligible for the QBI deduction. It breaks down as follows:
- If single and your taxable income falls below $160,700 then you might be able to take advantage of it.
- If married, your income can be up to $321,400.
- Also, if your business falls into the IRS's classification of "specified service trade or business" you cannot claim it if you make over $210,700 (single/) or $421,400 (married/).
- If you are eligible to claim the deduction but your income exceeds the stated limits, then your deduction is usually capped as a percentage of W-2 wages paid out.
Again, to take the QBI deduction, you need to qualify as a pass-through entity. This includes S Corps, LLCs, Partnerships, and sole proprietors. C Corps are not eligible for this particular deduction.
The details regarding such things as income limits when it comes to the QBI deduction and also what exactly constitutes an SSTB (specified service trade or business/) can get a bit hard to navigate. As a small business owner, it probably makes sense to consult and work with a qualified tax professional if you do think you qualify for the QBI deduction.
Whether you need additional funding come tax time or any other time, First Union Lending can help! We make it easy to gain access to additional working capital with our fast and flexible loan programs. Call today!