Get More Money Back on Your Tax Return with help from the Tax Cuts and Jobs Act
- Author Lauri Pitcher
- Published March 11, 2018
- Word count 532
Are you expecting a tax refund for your business this year? Check this out. There’s a way to get an even bigger refund, no matter the size of your business. This year the Tax Cuts and Jobs Act (TCJA) goes into effect, a law that might offer huge tax benefits for individuals with Qualified Business Income (QBI) through a partnership, S Corporation, LLC or sole proprietorship. Here’s how to qualify your business for the new tax deduction under the Tax Cuts and Job Act.
What is the Tax Cuts and Jobs Act?
The biggest highlight of the Tax Cuts and Jobs Act is that individuals may be able to deduct up to 20% of their QBI when filing their taxes. We define QBI as the net amount of gains, losses, sources of income and deductions in respect to your trade or business. This deduction takes place ‘below the line.’ What this means is it reduces your taxable income, but not your adjusted gross income. As such, you may only deduct no more than 20% of your taxable income over net capital gain. If your QBI is negative, treat it as a business loss and use it to offset income in years following. You can take advantage of the TCJA regardless of whether you take the standard deduction or itemize your expenses.
Tax Deduction Restrictions
Now, there are restrictions surrounding the Tax Cuts and Jobs Act. To qualify, you must conduct your business in the United States. Certain investments don’t apply. This includes capital gains or losses, dividends, trade or business as an employee and interest on income (unless the interest is on money allocated to your business). Lastly, your QBI doesn’t adjust for compensation received from an S Corporation or a payment guarantee through a partnership in exchange for partner services.
Additionally, the Tax Cuts and Jobs Act has ‘thresholds’, which discourages high-income business owners from exploiting this tax deduction by converting their wages or other personal compensations into taxable income. If your taxable income is $50,000 over a threshold ($100,000 for joint filers), all the net income from a specific service, trade or business may be be excluded from your QBI. These exclusions include healthcare, law, consulting, athletics and financial services, or where the principal asset is the reputation or skill of the business and its employees. The highest threshold is $157,500 for individuals, $315,000 for joint filers. This exclusion may phase-in for taxable incomes between the threshold amounts and the maximum exceeding amount.
For taxpayers making more than the highest threshold, there exists another limitation on the size of their deduction. Your deduction based on QBI cannot exceed the greater of (1) 50% of your allocable share of W-2 wages paid immediate to your trade or business, or (2) the sum of 25% of such wages and 2.5% of the unadjusted basis immediately after the acquisition of tangible depreciable property purposed for your trade or business (including commercial property). A phase-in of this limitation applies to people whose taxable incomes are between the threshold and the maximum overage amount.
There are further limitations that may apply in unique situations, including taxpayers with qualified cooperative dividends, real estate investment trust (REIT) dividends, or income from publicly traded partnerships.
To learn more about these limitations, feel free to contact us here at Lucia CPA (http://luciacpa.com), whom are "not your ordinary bean counters."Article source: http://articlebiz.com
There are no posted comments.
- You Would Never Have Thought That Having Accounting Internship Could Be So Beneficial
- ACTIVATION OF UAN
- Focal motivations behind getting a Tax direct for Small Business Firms
- Avoiding the flood — tax issues with water rights in agribusiness
- Social security benefits for a family (COVID-19)
- How to use QuickBooks Component Repair Tool?
- Do you want to reduce your taxes for next year?
- Will you be responsible with your tax refund?
- Getting started with QuickBooks Enhanced Payroll in Brief
- Are DSTs Right For Your 1031 Exchange
- Tax Return Makeovers By Kenya Woodard
- Why have all crypto tax attempts failed?
- Are You a Corporation? Know Why Consulting a Tax Accountant Is Vital
- Share capital or share premium for your Dutch company?
- Everything investors should know about 1031 sponsors
- Why is the income tax so high in UK?
- Should I do my own tax return?
- Don’t Fall Victim to these 3 Tax Scams in 2018
- Find Out If 72(T) Penalty Free Income Is a Solution for You
- 20 Things You Should Know About The New Tax Laws
- 4 Key Reasons Why Payroll Is Necessary Within A Business
- Accounting for doctors and GP's: Basic advice & guidance
- What is Cryptocurrency and Do I Have to Claim it on My Taxes?
- Here's Why Small Businesses Should Tap Bookkeeping Services
- Tax Tips for Teachers 2018
- Tax Extensions in 2017
- What to Do After Filing a Tax Extension
- Budget 2017: How it affects you
- 5 Tips On How to Avoid Scammers This Upcoming Tax Season