Understanding the Qualified Business Income (QBI) Deduction: A Tax Break for Your Business

The Qualified Business Income (QBI) Deduction is a powerful tax benefit that can help business owners save big on their taxes. Introduced by the Tax Cuts and Jobs Act (TCJA) of 2017, this deduction allows eligible taxpayers to deduct up to 20% of their qualified business income. Here’s what you need to know:

#What is QBI?

Qualified Business Income (QBI) is the net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business, excluding investment income, reasonable compensation, and guaranteed payments.

#Who Qualifies?

To benefit from the QBI deduction, your business must be a pass-through entity, such as:

- Sole proprietorships

- Partnerships

- S corporations

- Some trusts and estates

Non-SSTB vs. SSTB Companies

The IRS categorizes businesses into two types:

1. Specified Service Trade or Business (SSTB): Fields like health, law, accounting, consulting, financial services, etc. These businesses face income limitations for the QBI deduction.

2. Non-Specified Service Trade or Business (Non-SSTB): Businesses outside the above fields, such as manufacturing and retail, with fewer income limitations.

Tax Benefits

The QBI deduction can reduce taxable income by up to 20%, offering significant tax savings, especially for high-income earners.

Does Your IT Consulting Business Qualify?

• Consulting IT Services: If your business primarily provides consulting services, it's likely considered an SSTB, with phase-out rules applying based on income levels.
• Non-Consulting IT Activities: If your primary activities involve selling products, software development, or non-consultative services, you might be classified as a Non-SSTB, potentially qualifying for the full deduction.

Maximize Your Benefits

Accurately determining your business classification is crucial. Consulting with a CPA can provide personalized guidance to optimize your QBI deduction.

If you need help navigating these tax benefits or want to ensure you're maximizing your savings, let's connect! ????

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