What Is the QBI Deduction?
The Qualified Business Income (QBI) deduction, also known as the Section 199A deduction, is one of the most significant tax benefits available to business owners today. Introduced by the Tax Cuts and Jobs Act of 2017, this powerful tax provision allows eligible business owners to deduct up to 20% of their qualified business income from their taxable income.
For small business owners and entrepreneurs in North Carolina, this translates to potentially thousands of dollars in tax savings each year. However, with the deduction scheduled to expire after December 31, 2025 (unless extended by Congress), now is the time to ensure you’re maximizing its benefits.
Who Qualifies for the QBI Deduction?
The QBI deduction is primarily designed for “pass-through” business entities, including:
- Sole proprietorships
- Partnerships
- S corporations
- Limited liability companies (LLCs)
- Certain trusts and estates
If you operate your business through one of these structures, where business income “passes through” to your personal tax return, you may be eligible for this valuable deduction.
How the QBI Deduction Works
At its core, the QBI deduction allows eligible taxpayers to deduct up to 20% of their qualified business income. Here’s a simplified example:
- Your business generates $100,000 in qualified business income
- With the QBI deduction, you could potentially deduct $20,000 (20% of $100,000)
- Instead of paying taxes on $100,000, you’d only pay taxes on $80,000
This could result in thousands of dollars in tax savings, depending on your tax bracket.
Understanding the Limitations
While the QBI deduction is powerful, it does come with certain limitations and thresholds:
1. Income Thresholds: For 2025, the full deduction is available for single filers with taxable income below $197,300 and joint filers below $394,600. Above these thresholds, limitations may apply.
2. Specified Service Trades or Businesses (SSTBs): If you’re in fields like health, law, consulting, financial services, or performing arts, special rules may limit your deduction if your income exceeds certain thresholds.
3. Wage and Property Limitations: For higher-income business owners, the deduction may be limited based on W-2 wages paid by the business and/or the unadjusted basis of certain business property.
5 Strategies to Maximize Your QBI Deduction
With the right planning, you can potentially increase your QBI deduction. Here are some strategies to consider:
1. Monitor Your Taxable Income
If you’re approaching the income thresholds where limitations begin to apply, consider strategies to manage your taxable income, such as maximizing retirement plan contributions or deferring income to another tax year.
2. Evaluate Your Business Structure
Different business entities may offer varying QBI benefits. In some cases, restructuring your business could help optimize your deduction.
3. Review W-2 Wages
For higher-income business owners subject to wage limitations, consider whether your current compensation structure is optimal for maximizing the QBI deduction.
4. Invest in Qualifying Property
The QBI deduction for higher-income taxpayers can be enhanced based on the unadjusted basis of qualifying business property. Strategic investments in business assets could potentially increase your deduction.
5. Separate or Combine Business Activities
In some cases, separating or combining different business activities can help optimize the QBI deduction, especially if you operate multiple businesses.
Why Professional Guidance Matters
The QBI deduction is one of the most complex provisions in the tax code, with numerous rules, exceptions, and planning opportunities. Without experienced guidance, many business owners either miss out on claiming the full deduction or fail to claim it altogether.
At Murray Moyer PLLC, our team of experienced tax professionals understands the intricacies of the QBI deduction and how it applies to your specific situation. We provide comprehensive tax planning and preparation services designed to help you:
- Determine your eligibility for the QBI deduction
- Calculate your maximum allowable deduction
- Implement strategies to optimize your tax benefits
- Ensure proper documentation and compliance
- Prepare for the scheduled 2025 expiration
Act Now Before It’s Too Late
With the QBI deduction scheduled to expire after 2025, the window for taking advantage of this valuable tax benefit is closing. By working with Murray Moyer PLLC now, you can ensure you’re maximizing your deduction for the remaining eligible tax years while also preparing for potential changes to the tax landscape.
Our bookkeeping and tax preparation services go beyond just claiming deductions – we provide strategic guidance to help you optimize tax planning and minimize your overall tax burden.
Contact Murray Moyer PLLC Today
Don’t leave money on the table when it comes to the QBI deduction. Contact Murray Moyer PLLC today to schedule a consultation with our tax professionals.
Our team will help you understand how the QBI deduction applies to your business and implement tailored strategies to maximize your tax savings before this valuable deduction potentially disappears.