This is the fifth in my series of tax updates to get my clients ready for their December Tax Planning Sessions. The One Big Beautiful Bill Act (OBBBA) changes discussed today include…
1 – The Qualified Business Income Deduction (QBID)
QBID was one of the hallmarks of the Tax Cuts and Jobs Act of 2017. Taxpayers engaged in a qualified trade or business can get up to a 20% deduction off of their income. Notice how I said, “up to 20%”, because this is by no means automatic.
Given your business category, you may not get any deduction at all. This deduction is taken at the personal level rather than the business level and applies only to the following taxpayers:
a – Sole Proprietors
b – Partners of Partnerships
c – Shareholders of S Corporations
d – Members of LLC’s that are treated as Sole Props, Partnerships, or S Corps
e – Some Rental activities reported on Schedule E
f – Estates
g – Trusts
h – Certain Tiered Entities
QBID is only a deduction for income tax. It doesn’t reduce Payroll Taxes or Net Investment Income. It is allowable whether you itemize your 1040 or not. The QBID cannot create a loss. If the entity in question is at a loss, you won’t receive any further QBID.
2 – Taxable Income Limitations for QBID
The initial QBID for a qualified business is the lesser of
a – 20% of the taxpayers Qualified Business Income with respect to each qualified business or
b – The greater of:
i. 50% of the W-2 wages with respect to the qualified business or
ii. The sum of 25% of the W-2 wages with respect to the qualified business plus 2.5% of the unadjusted basis immediately after acquisition of all Qualified Property (QP).
3 – 2025 Taxable Income Thresholds For QBID
The Threshold Phase-Out Ranges and Overall Taxable Income (OTI) for 2025 are…
a – Married Filing Joint $394,600 $100,000
b – Married Filing Separate $197,300 $50,000
c – Single/Head of Household $197,300 $50,000
If your taxable income is below the threshold, then your Qualified Business Income Deduction is 20% of your Qualified Business Income. But the QBID is limited by OTI.
If your business has $100,000 in profit but the Overall Taxable Income on your return is only $80,000 due to other taxable losses, then you’ll only get a deduction of $16,000 or 20% of the $80,000 OTI. If you are below the threshold, then it doesn’t matter what type of enterprises the business is engaged in.
If your taxable income is between the lower and upper threshold, then you’re in what is referred to as the Phase-Out Range. Your QBID is reduced by an applicable percentage of the W-2/QP limit. This modification results in a reduced QBID.
4 – 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…
a – Health
b – Law
c – Accounting
d – Actuarial Science
e – Performing Arts
f – Consulting
g – Athletics
h – Financial Services including investing, investment management, and trading or dealing in securities
i – 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.
Let me leave you with this…
This is going to be a very strange tax season.
I’ve been doing tax planning sessions with clients for the past week and incomes are all over the board. Let’s remember that all four quarters of this year weren’t strong.
Most people had difficulties in the middle when the tariffs were announced. Some entrepreneurs are having their best year ever, while others aren’t.
Also we have all of these new tax laws to apply and learn. This season is going to be interesting.
If you haven’t already done so, please get your work into us as soon as possible. I can’t do your tax planning if I don’t have a nailed down set of November Financials.
I just won’t have anything to work with.
And if you are having any difficulties with your current accounting situation, we’d love to talk to you. I’m waiting for your call.
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
www.AccountingSolutionsLtd.com
Note that the only professional services provided by Accounting Solutions Ltd. are those specified in a written communication from our office detailing the scope of services to be rendered and the terms and conditions applicable to the engagement.
Disclaimer: The content on our website or newsletter is provided solely for general informational purposes and should not be construed as tax, accounting, legal, investment, or professional advice of any kind. Accessing this information does not create, and is not intended to create, an accountant-client relationship. This information may not reflect the most current tax laws, accounting standards, or regulatory developments and may not apply to your specific jurisdiction or circumstances. It is not a substitute for consulting qualified professionals. Before making any decisions or taking any actions, you should seek advice from a professional who is fully informed of all relevant facts pertaining to your situation.
Tax-related content on this site is not intended, nor may it be used by any taxpayer, to avoid penalties that may be imposed under applicable tax laws. To comply with IRS requirements, we inform you that any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties or promoting, marketing, or recommending any transaction or matter addressed herein.
All information is provided “as is,” without any guarantee of completeness, accuracy, or timeliness, and without any warranty, express or implied, including but not limited to warranties of performance, merchantability, or fitness for a particular purpose. We disclaim all liability for any loss or damage arising from reliance on this information.
Links to third-party websites are provided for convenience only; we do not endorse or assume responsibility for their content. All materials are the property of our firm and may not be reproduced without prior written consent.