The QBI deduction allows eligible business owners to potentially deduct up to 20% of their qualified business income (QBI). This applies to income from sole proprietorships, single-member LLCs treated as sole proprietorships, partnerships, LLCs treated as partnerships, and S corporations.
Key Points:
- Definition and Reductions: QBI consists of qualified income and gains from eligible businesses, reduced by related deductions such as retirement plan contributions, self-employment tax deductions, and self-employed health insurance premiums.
- Limitations: The deduction phases out for higher income levels, starting at $191,950 ($383,900 for married joint filers) and is fully phased out at $241,950 ($483,900 for married joint filers).
- Income Thresholds: For incomes above these thresholds, the QBI deduction is limited to the greater of 50% of W-2 wages paid to employees or the sum of 25% of W-2 wages plus 2.5% of the unadjusted basis immediately upon acquisition (UBIA) of qualified property.
- Special Rules for SSTBs: Specified service trades or businesses (SSTBs) face a phase-out of the QBI deduction starting at the same income thresholds, with no deduction available once fully phased out.
- Other Considerations: Business owners can elect to aggregate multiple businesses for the purpose of the deduction, and must carefully consider the impact of depreciation deductions on their overall tax situation.
As the 2025 expiration date for the Qualified Business Income (QBI) deduction approaches, it is crucial to maximize this potential tax saver while it’s still available. The QBI deduction, up to 20% of your qualified business income, can significantly reduce your tax burden, but navigating its complexities and limitations requires careful planning.
For those with incomes above the thresholds ($191,950 for single filers and $383,900 for married joint filers), be aware of the phased-out benefits and the specific limitations that may apply, particularly if you operate a Specified Service Trade or Business (SSTB). Additionally, consider how aggregation of multiple businesses and strategic handling of depreciation deductions can impact your overall tax position.
The clock is ticking on this valuable deduction. Congress may extend it, but there are no guarantees. Therefore, making the most of the QBI deduction in 2024 and 2025 should be a priority. Our team is ready to help you navigate these complexities and optimize your tax outcomes. For personalized assistance, reach out to us at [email protected] or contact Richard Welling at [email protected].
By focusing on understanding and strategically utilizing the QBI deduction, you can enhance your tax efficiency and retain more of your hard-earned income. Don’t wait—take action now to ensure you benefit fully from this deduction before it potentially disappears.
