Advocacy Seeks to Extend Your Qualified Business Deduction
Running a small business is exciting.
It's full of twists and turns. Guaranteeing that dullness stays far away from your workday.
However, it does present its own set of challenges. Both from outside and inside the business.
An external hazard has recently presented itself and I want to address it. So, you can prepare and plan accordingly.
Read on my fellow small business practitioner.
Qualified Business Income Deduction Meaning
The qualified business deduction (QBI) applies to the final value of items from business income, loss, gain, and deduction.
Examples:
- Individual health insurance
- IRA contributions
Non-examples:
- Dividends from non-business investments
- Capital gains or losses
Not every company can adopt the QBI, although I'm sure everyone would like to.
Applicable businesses:
- S-Corporations
- Sole proprietors
- LLCs
- Partnerships
Most, if not all, have paid staff. The one exception is sole proprietors who aren't quite ready to outsource.
Within those structures, there is an additional financial qualification.
Filing Individually
Income less than $182,100
Filing Jointly
Income less than $364,200
Data from ZipRecruiter shows that the average small business operator falls into this range. The highest paid live in New York ($143,878), while the lowest paid in Florida still make out well ($96,936).
Other variables like cost of living and income tax laws may equate to tight family budgets despite this solid earning. As such, every possible break is welcome.
One major benefit of the qualified business expense deduction stands out. Enabling small businesses to enjoy tax savings which can then be reinvested. Either into the business or employees.
Possible reinvestment areas:
- Strengthening your professional development
- Adding to your internal or outsourced staff
- Opening new channels for digital and traditional marketing
- General improvements to your venture
My guess is that you aren't in business simply to say you are. But rather to become a well-respected market leader. You can achieve this gradually. Or you can reach this coveted position sooner by using every possible advantage.
Next, I want to briefly identify a few components of this allowance.
Deduction Characteristics
Without dragging you into the "tax weeds, there are two attributes worth noting.
- More than one 20% figure
- Itemization isn't a prerequisite
Taxable business income isn't the main recipient of this reduction. Total taxable income can also experience a positive net effect.
Here's how. Using your Schedule C, list income and expenses per your usual. Then calculate adjusted gross income via Form 1040. After those steps are complete, figure out your pass-through deduction.
Should you adopt the standard deduction, you can still claim the QBI.
My purpose in sharing these points? It's hopefully to show that you shouldn't rule out this tax write-off if the qualifications cited earlier don't apply.
Your best way to confirm this and any other abatements is through a professional review.
Reasons to work with an accountant:
- Support during an IRS dispute or audit
- Provide effective tax planning strategies
- Multiply available credits/deductions
Family and friends can encourage you through the adversity from IRS scrutiny. Couple that with an advocate to work on your behalf in resolving an open case.
Your strategy for taxes should evolve with any updates to tax laws. A well thought out attack plan saves money and increases the likelihood of breaking even. Translating to more cash flow, the fuel for your operation.
Accuracy, compliance, and significantly less stress are a few more arguments in favor of these folks.
The breaks you have access to will depend on your geographical location. Rather than having to devote extra time to research, your accountant will present an applicable list that your state grants.
Unfortunately, this valuable aid to longevity and growth may be ending.
Qualified Business Deduction Phase Out
Set to expire in 2025, the removal of your qualified business tax deduction will ultimately hurt the overall economy.
But not if the National Federation of Independent Business (NFIB) has anything to say about it. Their advocacy seeks to make it permanent.
Via the Main Street Certainty Act (H.R. 4721 / S. 1796).
Backers:
- Lloyd Smucker (R-MO)
- Henry Cuellar (D-TX)
- Steve Daines (R-MT)
Their opinion on the importance of this legislation is something I share.
COVID devastated our peers. According to a combined project from two top universities, almost 30% of small businesses closed in 2020 alone.
A new threat to the survival of the remaining 70% exists in the end of this tax break.
Rural areas will see the most immediate impact. Because local economies lack the extra cushion that larger ones in cities enjoy. Namely, in the greater number of businesses present in urban environments.
But metropolitan centers won't be immune from the negative effects.
Critics of the proposed Act inaccurately claim that the QBI is a tool of the wealthy. Or those making over $400,000 annually.
Lots of small business owners would love to make that much each year. But they simply don't.
Their contributions don't stop at boosts to regional economies. Adding local jobs. Supporting youth sports teams.
Without tax savings, these same ventures might have to let go of employees.
NFIB also found that 81% of owners see the QBI as integral to their business health.
Before you go, know that there's a way to protect your business from ever-changing tax laws.
Blue Slate Accounting Managing Your Qualified Business Expenses
Something is missing from the field.
A human approach to business tax services. Zelienople, PA is our home, but we’ve worked with SMBs across this great nation.
Whether that’s aiding their successful filing or dealing with an IRS audit.
Our small, but dedicated team of certified tax professionals and an IRS Enrolled Agent assist with:
- Federal, state, and local taxes
- Navigating tax regulations
- Increasing money you’re legally entitled to
- Limiting any tax burden
- Quarterly filings
We can clean up the debacle of that unorganized box of tax documents. For a monthly fee, we can counsel you on deductions and breaks to use next time.
Your return will be double-checked by hand for ultimate accuracy. Because we strive for excellence just like you do.
Offload your business tax needs today. And take the first step towards reclaiming your joy and happiness!









