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QBI  The New Business Deduction

Posted by Jack Craven CPA on Thu , Nov 29 , 2018

We get more calls regarding the new Qualified Business Income (“QBI”) deduction than any other aspects of the new tax law. Simply put, the QBI deduction is 20% of your “qualified business income.” The rules, however, are not simple, they are quite complicated. If you qualify the benefit is substantial.

Complex and  Confusing New Rules

A new deduction is available to businesses with qualified business income (QBI). While that's great news, new deductions (especially ones with lots of rules) can bring anxiety and confusion. Never fear! Ensuring you receive a maximum deduction will come down to providing the proper information. Here is some knowledge to help you cut through the confusion:

What is the QBI deducton?

In short, it's a 20 percent deduction against ordinary income, taken on your personal tax return, that reduces qualified business income earned for most pass-through businesses (sole proprietorships, partnerships and S-corporations). It's not an itemized deduction, so you can take it in addition to the standard deduction. To qualify without limitations, your total taxable income needs to be below $157,500 ($315,000 for married couples) for 2018. If your income exceeds the threshold, it gets complicated.

What you need to know:
  • If your total taxable income is above the income threshold, your deduction may be limited or nullified. If your income is below the threshold, the calculation is pretty straightforward. If not, additional phaseouts, limitations and calculations come into play. The first limitation to consider is whether or not your business is qualified. Certain specified service trades or businesses (SSTBs) are excluded from the deduction altogether if taxable income is over the threshold. If your business is not an SSTB, other calculations related to W-2 wages and basis in qualified business property may be required.
  • Schedule K-1s for S-corporations and partnerships have new codes. Businesses with partners and shareholders are now required to report information related to the QBI deduction on each Schedule K-1 they issue. Based on the draft versions of the forms, the new codes will be in Box 17 for S-corporations (V through Z) and Box 20 for partnerships (Z through AD). If you receive a Schedule K-1, check to see if the new codes have values associated with them. If not, contact the issuing business to correct the mistake. Schedule K-1s without the required data will delay your tax-return filing.
  • Certain data needs to be collected. For the most part, the data required to calculate your deduction will be included on the normal forms needed to file your taxes. Here is list of common documentation to watch for that may be required to calculate your QBI deduction:
    • Business financial statements
    • Forms W-2 and W-3 issued by your business
    • Purchase information related to business assets
    • Schedule K-1s
    • Forms 1099-B with cost/basis information
  • The sooner you close your books, the better. The new deduction means more work. Knowing your final business net income as soon as possible gives you extra time to work through the additional necessary calculations. If your business is required to issue Schedule K-1s, even more time may be required.
  • More guidance is expected from the IRS. In August, the IRS published guidance to clear up some of the confusion regarding the deduction, but it didn't cover everything. The American Institute of CPAs (AICPA) responded with 11 specific items that still need to be addressed.

With proper planning and preparation, you can rest easy knowing that obtaining your shiny, new QBI deduction is in good hands.

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Topics: QBI

Checklist for a Healthy Cash Flow

Posted by Jack Craven CPA on Tue , Nov 29 , 2016

Any business owner who has fended off calls from unpaid creditors or who has wondered how to meet the next payroll knows the importance of cash flow. Ironically, business success and cash shortages often go together. If growing sales are on credit, they create a larger accounts receiveable which your company is funding. Your income statement may show a hefty profit, but profit doesn't pay the bills - cash does! That's why understanding and controlling the cash flow in your business is so important.

We discuss three business strategies that will help you maintain a healthy cash flow in your company:

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Topics: cash flow, financial management, healthy cash flow, business stategies

Potential Tax Exemption for Website Designers and Software Developers

Posted by Jack Craven CPA on Wed , Sep 28 , 2016

The New York State Department of Taxation and Finance has released information for a possible tax break that can be beneficial to software and website professionals. If this applies to you, the purchase of computer hardware may be exempt from sales tax. The exemption can end up being worth several hundred dollars in savings when purchasing eligible computer system hardware.

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Topics: website professionals, tax exemption, computer system hardware

Jack Craven Speaks at GNYCC Business EXPO

Posted by Jack Craven CPA on Tue , Sep 20 , 2016

 John F. Craven CPA will be moderating a panel on Small Business Success Strategies at the Greater NY Chamber of Commerce Business EXPO that begins at 10:30am on September 23rd. Panelists include:

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Topics: Business strategies, startup businesses, hiring programs

AdMedia Survey Forecasts Positive M&A Outlook

Posted by Jack Craven CPA on Thu , Aug 04 , 2016

            AdMedia Partners, a leading media M&A advisor, performs an annual survey of senior executives. This year’s survey shows an expected deal increase for mergers and acquisitions in the media and technology industry. The following key points highlight AdMedia’s findings.

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Topics: media deals, merger and acquisition, technology deals, media forecast, AdMedia, M&A

Deter Identity Theft With Fraud Alerts and Security Freezes

Posted by Jack Craven CPA on Thu , Jul 07 , 2016

If someone steals your identity, you will begin to feel the confusion and strain that comes with trying to recover your good name and pilfered finances. Identity theft is a real and growing concern for everyone; remain alert and prepare before it happens. We have put together some ways to deter identity thieves and protect your information:

  • Shred financial documents as well as personal information before getting rid of them.
  • Protect your Social Security number
  • Remain cautious with personal information on the phone, by mail, or over the internet.
  • Protect your home computer with anti-virus guard software.
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