I wrote about the ability for owners of pass-through entities to receive up to a 20% deduction off of their income for tax purposes. What’s known as the Qualified Business Income Deduction or QBID has many additional limitations that include…
Specified Service Business (SSB) Taxable Income Limitations
There are certain types of businesses that aren’t considered qualified businesses that generate QBI or Qualified Business Income. An SSB is any trade or business that performs a service in the following areas…
Health
Law
Accounting
Actuarial Science
Performing Arts
Consulting
Athletics
Financial Services including investing, investment management, and trading or dealing in securities
Brokerage Services
This definition doesn’t include Architects, Engineers, Insurance or Real Estate Professionals.
If you’re engaged in one of these areas, then you do not get a Qualified Business Income Deduction because your business is not considered a Qualifying Business. This extends to the real estate involved in these enterprises.
An example would be me. I own an accounting firm and several other financial businesses. As such, I do not receive any QBID.
I also own the building where those businesses are operated. Since the building houses those enterprises, I cannot receive a QBID on any Real Estate Income from the building rents either.
Crack and Pack Rules
You cannot separate your business into two or more businesses to take advantage of the SSB Rules. An example would be an accounting firm like mine.
Let’s say that I separated my business into two; one being an Accounting Firm and the other being a Secretarial Service. The Accounting Firm is certainly listed as a Specified Service Business so the Qualified Business Income Deduction isn’t allowed for this income.
But it wouldn’t be for a Secretarial Service.
Separating the business into two or more units is specifically not allowed under the new anti-abuse provisions. Substantial penalties would apply.
Overall Taxable Income (OTI) Limitation
As stated previously, the Qualified Business Income Deduction is limited by your Overall Taxable Income. The final QBID for a tax year is the lesser of a taxpayer’s…
1 – Combined QBID, or
2 – OTI Limitation which is defined as 20% of the excess (if any) of:
a. The taxable income of the taxpayer for the tax year, over,
b. The taxpayer’s net capital gain for the tax year
In order to explain, let’s use another example.
Joanne B. Owner has an S-Corp that would normally have $600,000 in income after taking a $100,000 salary. Let’s say that we wanted to get Joanne a QBID so we increased her salary to $400,000 reducing the S-Corp pass through income to $300,000.
Can I then get the Qualified Business Income Deduction? The answer is no.
Maybe I can get a deduction based on the W-2 / Qualified Property rules, but not the normal QBID. I’m still putting $700,000 on that 1040 and she’s still way over the limits.
This is the seventh column in the series to help my clients before our December Tax Planning Sessions.
Let me leave you with this…
I’m sure I don’t need to remind you that we have an election tomorrow. Whether you turn on a TV, read a newspaper, or surf the internet, the reminders are omnipresent.
We can’t go anywhere without the vitriolic campaign rhetoric invading our consciousness. Constant reminders of the economy, abortion rights, border security, and crime fill every waking moment.
I’m not going to tell you who to vote for. Your choice will depend on your political leanings and the issues most important to you.
But I am going to suggest that going to your local polling place and casting your vote is one of the most important things we can do as Americans. Millions of our forefathers sacrificed to give you this right.
I don’t know if you ever wore a uniform and took the oath swearing to defend our nation against all enemies foreign or domestic. I don’t know if you ever shouldered a weapon, and stood on a line saying…
“Not today. Not on my watch. Today you shall not pass. I’ll give the very last drop of my blood defending our nation and what it stands for here and now.”
My family has served in most of the wars and major campaigns that made America what she is today. I could tell stories that go from my Father who was in the Army during Viet Nam and keep going back, but I’ll leave you with just one.
Charles Crowder, my Great-Great Grandfather, was born in 1843 on a plantation in the Carolinas. He was married to Lucy Crowder in 1863. They were both born slaves.
They escaped the plantation and their masters making their way to Wilson County, Tennessee, where my other set of Great-Great Grandparents had homesteaded a farm. Charles Crowder enlisted in the Union Army on 10 APR 1864, and rose to the rank of Corporal in the 42nd U.S.. Colored Infantry.
Tennessee was considered a southern state in the Civil War, but there were many Union Units, both white and black, that served in the area. To say that it was contentious and that Charles fought in dozens of battles with distinction and honor is an understatement. He made it through that bloody campaign and died in 1903 after fathering 9 children.
We have a tendency to forget the long and storied past of our great nation. We forget the sacrifices that were made so that we could live as we do today to have so many basic rights.
And one of those most precious rights is the right to vote.
All elections are important, but this one is more significant than most. Whether you’re voting for someone, or against someone else, make your voice heard.
And when we get the results of this one, rather than continuing the divide that sacrifices our union, let’s come together as one people, under God, with liberty and justice for all. For if we learned one thing from the nasty war that Charles Crowder fought, its that
United We Stand, Divided We Fall
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300
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