Month: August 2021

5 Tips for Claiming the Qualified Business Income Deduction

Some forms of taxable business income now have a lower rate, thanks to a new deduction for qualified business income (QBI). If you like the thought of paying tax on 20 percent less of certain kinds of business income, be sure to follow these five tips:

Qualifying Income

Only individuals and business owners with certain kinds of income are able to claim this new QBI deduction (also known as the Section 199A deduction). The QBI deduction may allow you to reduce your taxable business income by 20 percent if it’s earned by a domestic business that is operating as:

  • an individual,
  • sole proprietorship,
  • partnership,
  • S corporation,
  • real estate investment trust (REIT),
  • publicly traded partnership (PTP), or
  • some types of trusts and estates.

Income paid to you as an employee and income from C corporations is not eligible income for the QBI deduction. 

Income That Does Not Qualify

Qualified forms of income, minus deductions and losses, total your QBI. Wage income, as well as a dozen other varieties of income, do not figure into your QBI. A tax professional can walk you through the list of income types that do not count toward QBI.

 The Deduction’s Limitations

The 20 percent QBI deduction is only available to certain types of trades and businesses and allowable only under defined income levels. For example, domestic trades or businesses operating as sole proprietorships, partnerships, S corporations, trusts or estates with taxable income at or below $157,500 for those filing as individuals ($315,000 for a married couple filing a joint return), including the unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business. Other limits may also apply. Your tax professional can help you decide which ones apply to your situation. Itemizing your deductions by using Schedule A, or taking the standard deduction, does not affect your ability to claim the QBI deduction.

Trades or Businesses That Qualify

Any trade or business listed under Internal Revenue Code Section 162 qualifies except for three kinds:

  • Those conducted by a C corporation,
  • Performing services as an employee, or
  • A specified services trade or business (SSTB), one that relies upon an individual’s endorsement, likeness, voice, or identity (within certain industries) where the principal asset is the reputation or skill of at least one of its employees or owners. There are exceptions, however. IRS Publication 535 provides additional details about qualifying businesses.

Computing the QBI Deduction

Publication 535 also contains worksheets to help you compute the QBI deduction. In some cases, the Form 1040 instructions will be appropriate to guide you through the computation. Have a tax professional help you decide which method is right for your business. Donohoo Accounting is prepared to answer your questions and find the most deductions that apply to your particular business. Talk with one of our specialists or schedule an appointment today by calling 513-528-3982 or email us. Check us out on Facebook, Twitter or LinkedIn for our latest tips and updates!

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Personal Tax Prep Checklist

Getting ready to file your 2019 personal income taxes can be a daunting task of collecting information. But don’t worry, the pros at Donohoo Accounting Services are here to help! The information required to file your income taxes neatly falls into four categories: Your personal information, dependents’ information, income sources and deductions.

Your Personal Information

While most people may have this information ready-at-hand for other purposes, others may have to locate it. Either way, you will need it to file your federal, state and local income taxes. Be sure to have your Social Security number or tax ID number, as well as the full name and Social Security number or tax ID number for your spouse if you are married. If you have this information in written or printed form, be sure to shred the document after your tax preparation for security purposes. Professional accountants take very good care to do this.

Dependent Information

You will need the full names of your children or dependents along with their Social Security numbers or tax ID numbers. Having either their Social Security cards or their names and numbers in written or printed form may make filing easier for your tax preparer. However, as mentioned above, be sure to shred the document after your tax preparation for security purposes.

Income Sources
This is where collecting income tax information starts to get tricky, but you can do this!

W-2 Forms

If you and your spouse work a regular full-time or part-time job, your employer will issue a W-2 Form that shows your earnings and tax deductions for the year. Some employers mail W-2 Forms to their employees while others provide access to an electronic document online that you can download and print. Either way, secure a paper copy of your W-2 Forms for yourself and for your spouse.

1099 Forms

Companies issue this form to contracted workers who earn more than $600 within one tax year. Additionally, you may receive a 1099 Form if you received income from non-work sources such as investments, rental income, prior years’ state and local income tax refunds, lottery or gambling winnings, unemployment compensation or retirement benefits. In addition to the 1099 Form, you may be required to provide additional documentation for income earned outside of your primary job. Your tax professional can provide details.

Deductions

Although this area of tax filing seems complicated to most people, taking deductions can reduce your tax liability and may increase the likelihood of your getting an income tax refund. More than a dozen kinds of income tax deductions can be taken, but the most popular deductions are for qualified charitable contributions, home mortgage interest, educational expenses and medical expenses. While you may receive year-end statements from the institutions that received your contributions or payments, consult with your tax professional for details about the kinds of records you need to provide when claiming deductions.

To help you find the most deductions and keep your personal information secure, contact Donohoo Accounting Services at 513-528-3982 for a free consultation. We have served and earned the trust of individuals and small businesses throughout the Greater Cincinnati area for more than 20 years.

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