• Skip to content
  • Skip to primary sidebar

Header Right

  • Home
  • About
  • Contact

Archives for January 2019

What is Qualified Business Income (QBI) and Why Does It Matter?

January 16, 2019 by Admin

Business Tax - Sorenson and Company, CPAThe new Section 199A provides self-employed taxpayers the ability to deduct up to 20% of their Qualified Business Income (QBI) on their tax returns. In general, QBI is net income that is received from a Qualified Trade or Business. However, there are some exclusions, the most common of which are capital gains, dividend and interest income. Additionally, any guaranteed payments or “reasonable compensation” paid to owners is excluded.

How Does the New Tax Law Define QBI?

Section 199A(c) defines QBI as, “the net amount of qualified items of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer.” The section further states that qualified REIT dividends, qualified cooperative dividends, and qualified publicly traded partnership income are specifically excluded from the definition of QBI.

What are “Qualified Items of Income, Gain, Deduction, and Loss?”

Qualified items of income, gain, deduction, and loss are defined as items that are connected with a trade or business that is operated in the United States and are generally included or allowed when a business determines its taxable income for the year. However, there are items that are specifically excluded:

  • Short-term capital gains and losses
  • Long-term capital gains and losses
  • Dividends
  • Interest income
  • Foreign personal holding income
  • Income from an annuity if not received in connection with the business

These items may not be income or deductions for purposes of calculating QBI. A basic method of viewing QBI is “ordinary” income less “ordinary” expenses. In other words, investment gains and expenses are not QBI for Section 199A purposes.

Reasonable Compensation and Guaranteed Payments

In addition to the items discussed above, any reasonable compensation paid to the taxpayer by the business, including guaranteed payments, is not QBI. For example, if you receive $50,000 in wages from an LLC that you own and your share of income at the end of the year is $100,000 – only the $100,000 would be considered QBI.

Contact Sorenson and Company, CPA, today at 801-553-1120 to schedule your free consultation and learn about our unique tax reduction services. As a thank you for scheduling your consultation, we’ll provide you with a free book, The Great Tax Escape.

Filed Under: Business Tax

Primary Sidebar

Search

Archive

  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018

Category

  • Best Business Practices
  • Business Tax
  • Certified Tax Coach
  • Individual Tax
  • Investment
  • QuickBooks
  • Retirement
  • Uncategorized

Copyright © 2019 · https://www.csaccounting.com/blog