5 Tips for Claiming the Qualified Business Income Deduction

Some forms of taxable business income now have a lower rate, thanks to a new deduction for qualified business income (QBI). If you like the thought of paying tax on 20 percent less of certain kinds of business income, be sure to follow these five tips:

Qualifying Income

Only individuals and business owners with certain kinds of income are able to claim this new QBI deduction (also known as the Section 199A deduction). The QBI deduction may allow you to reduce your taxable business income by 20 percent if it’s earned by a domestic business that is operating as:

  • an individual,
  • sole proprietorship,
  • partnership,
  • S corporation,
  • real estate investment trust (REIT),
  • publicly traded partnership (PTP), or
  • some types of trusts and estates.

Income paid to you as an employee and income from C corporations is not eligible income for the QBI deduction. 

Income That Does Not Qualify

Qualified forms of income, minus deductions and losses, total your QBI. Wage income, as well as a dozen other varieties of income, do not figure into your QBI. A tax professional can walk you through the list of income types that do not count toward QBI.

 The Deduction’s Limitations

The 20 percent QBI deduction is only available to certain types of trades and businesses and allowable only under defined income levels. For example, domestic trades or businesses operating as sole proprietorships, partnerships, S corporations, trusts or estates with taxable income at or below $157,500 for those filing as individuals ($315,000 for a married couple filing a joint return), including the unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business. Other limits may also apply. Your tax professional can help you decide which ones apply to your situation. Itemizing your deductions by using Schedule A, or taking the standard deduction, does not affect your ability to claim the QBI deduction.

Trades or Businesses That Qualify

Any trade or business listed under Internal Revenue Code Section 162 qualifies except for three kinds:

  • Those conducted by a C corporation,
  • Performing services as an employee, or
  • A specified services trade or business (SSTB), one that relies upon an individual’s endorsement, likeness, voice, or identity (within certain industries) where the principal asset is the reputation or skill of at least one of its employees or owners. There are exceptions, however. IRS Publication 535 provides additional details about qualifying businesses.

Computing the QBI Deduction

Publication 535 also contains worksheets to help you compute the QBI deduction. In some cases, the Form 1040 instructions will be appropriate to guide you through the computation. Have a tax professional help you decide which method is right for your business. Donohoo Accounting is prepared to answer your questions and find the most deductions that apply to your particular business. Talk with one of our specialists or schedule an appointment today by calling 513-528-3982 or email us. Check us out on Facebook, Twitter or LinkedIn for our latest tips and updates!

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Personal Tax Prep Checklist

Getting ready to file your 2019 personal income taxes can be a daunting task of collecting information. But don’t worry, the pros at Donohoo Accounting Services are here to help! The information required to file your income taxes neatly falls into four categories: Your personal information, dependents’ information, income sources and deductions.

Your Personal Information

While most people may have this information ready-at-hand for other purposes, others may have to locate it. Either way, you will need it to file your federal, state and local income taxes. Be sure to have your Social Security number or tax ID number, as well as the full name and Social Security number or tax ID number for your spouse if you are married. If you have this information in written or printed form, be sure to shred the document after your tax preparation for security purposes. Professional accountants take very good care to do this.

Dependent Information

You will need the full names of your children or dependents along with their Social Security numbers or tax ID numbers. Having either their Social Security cards or their names and numbers in written or printed form may make filing easier for your tax preparer. However, as mentioned above, be sure to shred the document after your tax preparation for security purposes.

Income Sources
This is where collecting income tax information starts to get tricky, but you can do this!

W-2 Forms

If you and your spouse work a regular full-time or part-time job, your employer will issue a W-2 Form that shows your earnings and tax deductions for the year. Some employers mail W-2 Forms to their employees while others provide access to an electronic document online that you can download and print. Either way, secure a paper copy of your W-2 Forms for yourself and for your spouse.

1099 Forms

Companies issue this form to contracted workers who earn more than $600 within one tax year. Additionally, you may receive a 1099 Form if you received income from non-work sources such as investments, rental income, prior years’ state and local income tax refunds, lottery or gambling winnings, unemployment compensation or retirement benefits. In addition to the 1099 Form, you may be required to provide additional documentation for income earned outside of your primary job. Your tax professional can provide details.

Deductions

Although this area of tax filing seems complicated to most people, taking deductions can reduce your tax liability and may increase the likelihood of your getting an income tax refund. More than a dozen kinds of income tax deductions can be taken, but the most popular deductions are for qualified charitable contributions, home mortgage interest, educational expenses and medical expenses. While you may receive year-end statements from the institutions that received your contributions or payments, consult with your tax professional for details about the kinds of records you need to provide when claiming deductions.

To help you find the most deductions and keep your personal information secure, contact Donohoo Accounting Services at 513-528-3982 for a free consultation. We have served and earned the trust of individuals and small businesses throughout the Greater Cincinnati area for more than 20 years.

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Five Best Credit Cards for Your Small Business

Using a business credit card can help small business owners easily track and record their monthly business expenses. Business credit cards also offer convenience to business owners and their employees by providing a cash-free means of paying for everyday expenses including making online purchases. However, having so many credit card options available to small businesses, how can you know which ones make the most sense to use? And which provide the most benefits without racking up lots of fees? To help you narrow down the choices, we’ve selected the five best small business credit cards that are worthy of your consideration.

Chase Ink Business Preferred VISA

Especially if travel is an essential part of carrying out your business, then the Chase Ink Business Preferred VISA just may be the credit card for you. This card offers 80,000 bonus points after making purchases totaling $5,000 or more in the first three months. Points are worth 25 percent more when redeemed for travel through Chase’s Ultimate Rewards program. The annual membership fee is $95.

CapitalOne Spark Cash for Business

For businesses that have a high volume of monthly expenditures, the CapitalOne Spark Cash for Business card’s unlimited 2 percent cash back rewards may pay big dividends. For new cardmembers, you’ll earn a one-time cash bonus of $500 when you make $4,500 in purchases in the first three months. The $95 annual membership fee is also waived in the first year.

American Express SimplyCash Plus Business

If keeping your monthly credit card balance low is a priority, consider the American Express SimplyCash Plus Business card for your small business. This card’s cash back rewards can be applied to your card balance in the form of a statement credit. Additional benefits include a 0 percent introductory APR for your first 9 months and a $0 annual membership fee.

Bank of America Business Advantage Travel Rewards World Mastercard

Another favorite credit card among small business owners who travel is the Bank of America Business Advantage Travel Rewards World Mastercard. Cardholders earn unlimited 1.5 points for every dollar spent and 3 points per $1 spent on travel arrangements booked through BoA’s Travel Center. Other incentives include 0 percent introductory APR for the first 9 billing cycles, no annual membership fee and no fees on international transactions.

Costco Anywhere Visa Business Card by Citi

Business owners who purchase their supplies in bulk or buy inventory items for resale from Costco may prefer the Costco Anywhere Visa Business Card by Citi. Cardholders earn cash back rewards of 1 to 4 percent (based on purchase types) that can be redeemed for merchandise — or as cash back — at any U.S. Costco warehouse. There are no foreign transaction fees on purchases and no annual membership fee with a paid Costco membership.

Contact Cincinnati’s most trusted small business accountant, Donohoo Accounting Services, by calling 513-528-3982 or email us today. For more than 20 years, we have helped small business owners like you wisely manage their business finances. And don’t forget to check us out on Facebook, Twitter or LinkedIn for our latest updates!

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Get Your Money in Order for the New Year

This year is quickly coming to a close. Get ahead of the game and get your money in order for the new year. Don’t know where to begin? No worries! Here are some helpful tips.

Get Organized

Organize Concept Metal Letterpress Word in Drawer

You can file taxes after the new year, so now’s a good time to get all your ducks in a row. In January and early February, you’ll be receiving important documents in the mail including your W2, mortgage interest statement (1098), or student loan interest statement (1098-E.)Most companies, by law, have until January 31 to mail statements, so keep an eye out.

Designate a single location where you’ll keep these documents so they are easily accessible when you’re ready to file taxes. You can use a folder, drawer, box or other container. Put a large “taxes” label on it and use the container for tax-related documents only, not other mail or bills. But you may want to keepit near where you sort mail, so you can immediately put the documents in their home.

Then start gathering other items you’ll need for filing taxes, including charitable contributionand expense receipts. Qualified expenses depend on your situation, but could include expenses related to childcare, medical, job (mileage, supplies, relocation) and education. Donohoo Accounting Services can help you navigate the complicated tax structure. In addition to income tax preparation, we handle payroll tax prep, tax levies and liens, back taxes, end tax penalties, estate tax return preparationand more.

Make Year-End Charitable Contributions

Many charities do a final fundraising push at the end of the year, so you’ll probably receive solicitations asking for support. If you want to help non-profit organizations while also possibly reducing your taxable income, make your donations by December 31. Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of the yearwill count in that year – even if the credit card bill isn’t paid until later. You’ll want to make sure the charity is eligible. Many times, the charity will note its “501c3” status, which is IRS speak for tax-exempt. You can also use the IRS Tax Exempt Organization Search.

Take an Assessment of Where You Stand Financially

Magnifying glass showing assessment word on grey background

Now’s a good time to take a hard look at your income, debt, expenses, retirement funds, college and emergency savings. Are you on track to meet financial goals? If yes – great! If no – why are you falling short? To properly move forward into the next year, you need a realistic picture of where you are now. Put pen to paper and write down all the numbers. It helps to see everything in black and white.

Make a Financial New Year’s Resolution (Or Better Yet – Create APlan You’ll Stick With All Year)

Once you know where you stand currently, you can create a plan for the upcoming year. Perhaps you want an emergency savings fund. You never know when the furnace is going to go out, someone in your family has a medical issue or there’s a company layoff. Experts say you should have enough emergency savings to cover three to sixth months of expenses. Maybe you have all your financial bases covered but want to take an exotic vacation? Set the goal, create a plan and start saving for that overseas beach trip. Although it’s a busy holiday season, set aside time to get your money in order for the new year. Once you’re ready to file taxes, turn to Donohoo Accounting Services, locally owned and operated by Cincinnati native, Duane Donohoo.