It is time to tackle the ever so complicated new 20% Qualified Business Income (QBI) deduction passed with the Tax Cuts and Jobs Act on December 22, 2017. By reducing the 35% c corporation tax rate to a flat 21%, Congress was pressured to extend a helping hand to small businesses. On the surface, the deduction is equal to 20% of business net income from flow-through entities and sole proprietors. Sounds simple right? Although the new deduction may appear straightforward at its core, the code includes income phase-outs, limitation calculations, definition uncertainties, and overall, gray areas. If applicable, many flow-through and sole proprietor business owners will receive a heightened reduction in their federal tax burdens beginning tax year 2018. We decided the best way to break down the convoluted tax code was by introducing a flow chart for all of you curious business owners.

Enjoy!

20% QBI Flow Chart

 


 

The information examined in this article should not be interpreted as accounting, legal, tax, or investment advice performed by Rood & Associates, LLP. Although certified public accountants have prepared this information, the reader should seek advice from a professional before implementing the aforementioned advice. The information is not intended to create an accountant-client relationship and is purely educational. Rood & Associates, LLP assumes no liability to update the information due to changes in tax law or other important pertinent factors that may affect the information.