Qualified Business Income Deduction: How Will Tax Reform Impact Small Business Owners?

For business owners and individuals alike, the Tax Cuts and Jobs Acts (TCJA) brings about a number of changes for 2018 income tax returns. One of the most impactful is the Section 199A deduction, commonly referred to as the Qualified Business Income (QBI) deduction. The QBI deduction is relevant for individuals who own domestic business entities that pass-through income to the business owners, also known as “pass-through entities,” and it aims to improve the benefits for those who do not receive the major tax cuts that TCJA provides to C corporations.

Taxpayers may be entitled to a deduction of up to 20 percent of qualified business income. Many business owners will be able to claim this deduction for the first time when they file their 2018 federal income tax return in 2019. If the QBI deduction impacts your business, consider the following:

  • How does the QBI deduction work? Business owners may be eligible to deduct up to 20 percent of qualified business income on their individual return. The deduction is available whether or not an individual itemizes their deductions on Schedule A or takes the standard deduction.
  • What types of businesses are pass-through entities? Sole proprietorships, sole owners of rental real estate, partnerships, S corporations, LLCs (that elect not to be treated like C corporations) and trusts and estates
  • Are there any limitations to QBI? For taxpayers with taxable income exceeding $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers, the deduction is subject to limitations including the type of trade or business, the amount of W-2 wages paid to employees by the business and depreciable assets. Also, income earned through a C corporation or by providing services as an employee is not eligible for the deduction.

At Lodovico & Associates, our trusted tax advisors are prepared to help you and your business best utilize tax reform changes like the QBI deduction to minimize your tax implications and maximize your returns. We look forward to the opportunity to service your 2018 income tax return needs and to discuss any specific questions you may have.

By Geno Lodovico and Tony Colaizzi

Geno Lodovico is a Senior Tax/ Accounting Manager at Lodovico & Associates. He manages multiple tax engagements to deliver quality tax services for our clients. He builds and manages new and existing client relationships for the firm, and is proficient in the preparation of federal and state income tax returns for individuals, proprietorships, partnerships, corporations, trust, and estates.  He reviews financial statements consisting of balance sheets, profit & loss, and cash flow and compiles general ledger Information into accounting programs.

Tony Colaizzi is a Certified Public Accountant. As trusted tax consultant, Tony C. provides small businesses with tax and accounting advisory services including financial statement analysis, tax projections and planning. He expertly prepares all tax returns including corporate, s-corporate, partnership, non-profit and individuals while staying current on tax legislation through research and continuing education.


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