As a business owner, you’re likely aware of the tax-saving opportunity that comes with the Qualified Business Income (QBI) deduction, introduced by the Tax Cuts and Jobs Act. This deduction allows eligible business owners to deduct up to 20% of their qualified business income, potentially resulting in substantial tax savings. However, it’s important to note that this valuable deduction is set to expire after 2025, giving you a limited window to maximize its benefits.
The QBI deduction is available to sole proprietors, partnerships, S corporations, and certain LLCs. However, the deduction comes with some limitations, especially for high-income earners or those in specified service trades or businesses where the benefit phases out at higher income levels.
To make the most of the QBI deduction before it sunsets, here are a few strategies to consider:
Strategies to Maximize Your QBI Deduction
- Business Aggregation
If you own multiple businesses, combining them for QBI purposes may help increase your deduction. Aggregation allows you to treat multiple related businesses as a single entity for QBI, potentially increasing your overall deduction and simplifying the reporting process. - Carefully Manage Depreciation
The way you handle depreciation on assets can impact your taxable income and QBI. Adjusting your depreciation deductions strategically could help maximize your QBI benefit. A tax professional can help determine the best approach based on your specific situation. - Review Retirement Contributions
While contributing to retirement plans offers great tax deductions, it can also reduce your QBI deduction if it lowers your business income. It’s essential to balance the benefits of retirement contributions with your QBI goals. - Filing Separately
In some cases, filing as “married filing separately” can increase your QBI deduction. This strategy requires careful consideration, as filing separately has implications for other tax benefits as well. A tax professional can help you weigh the pros and cons based on your circumstances.
With 2025 approaching, now is the time to evaluate your approach and implement strategies to maximize this deduction.
Need Help with Your QBI Strategy?
If you’d like to discuss these in more detail, feel free to reach out to me directly at 812-827-2697 or team@elitetaxstrategysolutions.com.
David P. Fritch
Attorney at Law/CPA
Fritch Law Office
Elite Tax Strategy Solutions
Author and Founder of Badass Lawyer Blueprint
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