At Accavallo & Company, we understand the importance of leveraging every available tax-saving opportunity. The Qualified Business Income (QBI) deduction presents a significant chance for eligible businesses to reduce their tax liability. However, this deduction is scheduled to sunset after 2025. Hence, if you qualify, it’s crucial to capitalize on this benefit while it’s still accessible.
Understanding the Basics of the QBI Deduction
The QBI deduction operates at the owner level and can amount to up to 20% of qualified income. This encompasses earnings from sole proprietorships, single-member LLCs treated as sole proprietorships for tax purposes, and pass-through entities like partnerships, LLCs treated as partnerships, or S corporations.
Qualified income includes gains from eligible businesses, adjusted for related deductions such as contributions to self-employed retirement plans, self-employment tax deductions, and self-employed health insurance premiums.
Navigating Limitations and Thresholds
For higher income earners, limitations on the QBI deduction come into effect. In 2024, these limitations initiate when taxable income surpasses $191,950 ($383,900 for married joint filers) and fully phase in beyond $241,950 or $483,900 respectively.
If your income exceeds the fully-phased-in threshold, your QBI deduction is capped at the greater of your share of W-2 wages or a combination of W-2 wages and the unadjusted basis of qualified property.
Special Considerations for Specific Businesses
For specified service trade or businesses (SSTBs), phaseout begins at the same threshold, and if your taxable income exceeds the phaseout amount, you’re ineligible for the QBI deduction based on SSTB income.
Additionally, other rules apply, including the option to aggregate multiple businesses for deduction purposes, potentially allowing for a larger deduction than if businesses were considered separately.
Navigating Complexities and Maximizing Benefits
While the QBI deduction presents a valuable tax-saving opportunity, navigating its complexities requires careful planning. Factors such as claiming or forgoing certain deductions, like Section 179 depreciation or bonus depreciation, can impact your QBI deduction and overall tax outcome.
The clock is ticking on the QBI deduction, with its expiration slated for 2025. While there’s a possibility of extension, relying on such prospects isn’t prudent. Therefore, maximizing the deduction for 2024 and 2025 should be a priority.
At Accavallo & Company, we specialize in optimizing tax strategies to maximize benefits for our clients. Let us help you seize the full potential of the QBI deduction before it’s too late. Contact us today to schedule a consultation.
