Maximizing your qualified business income deduction. One of the most significant provisions is the new deduction for qualified business income which can be income from a sole proprietorship as well as income from pass-through entities such as partnerships, LLCs, and S corporations. Under the Tax Cut and Jobs Act, business owners may deduct up to 20% of their qualified business income; however, the deduction is subject to various rules and limitations.
Unfortunately, official guidance is lacking on this new deduction, but there are some planning strategies that can be considered now. For example, there are ways to adjust your business’s W-2 wages to maximize your qualified business income deduction. Also, it may be helpful to convert your independent contractors to employees, assuming the benefit of the deduction outweighs the increased payroll tax burden. Other planning strategies include investing in short-lived depreciable assets, restructuring the business, and leasing or selling property between businesses.
We will have more information on this new deduction once the IRS and Treasury Department provide guidance on what activities qualify for this deduction. We would suggest holding off on substantial modifications to your business operations until we can determine if you are eligible for this deduction. In some cases, the determination is fairly straightforward, in others, we will most certainly need to wait clarification. For information on Boyum Barenscheer’s business tax services, please contact John Csargo, CPA, MBT, CFP at firstname.lastname@example.org or 952.858.5553