If you own any size business, now is the time to review your business return to make sure you are receiving the maximum allowable “QBI” deduction. The public and many preparers still don’t have their arms wrapped around how this deduction works and many mistakes are being made!
Whether you file as a sole proprietor, S corp, partnership or PLLC; if your business income ends up flowing through to your 1040, you should be paying attention to this. Some trust returns and C corporations have different tax rates and they pay their entity taxes directly, but the majority of businesses in the U.S. are eligible to at least try to receive a qualified business income (QBI) deduction.
There are more rules and hoops to jump through than we can cover in a blog, but it is not important that you understand all of the nuances surrounding this deduction. What is important is to find out if you got a deduction, and if so, how much. How do you do that without being a tax expert? Look for form 8995 on your return. If the return does not contain an 8995, go ask your preparer why not. If there is an 8995, check to see if the qualified business income deduction near the bottom is exactly 20% of line 2 near the top of the form. For example: Total qualified business income: $50,000. Qualified business income deduction, $10,000, or 20% (which is the maximum). If your credit is less than that, go ask your preparer why!