Greetings. Lynn Spencer here. If you are an owner/shareholder in a small business, then you have likely heard something about Section 199A for Qualified Business Income from the TCJA 2017 tax bill. It was scheduled to expire at the end of 2025, until it was made permanent in O3B last month.
Section 199A allows eligible owners of pass-through businesses to deduct up to 20% of their qualified business income (QBI), reducing taxable income.
What counts as qualified business income?
- Net profits from sole proprietorships, S Corps, LLCs, or partnerships
- Qualified publicly traded partnership (PTP) income
- Rental income – active and not passive
- Certain income earned through a Trust
- Qualified real estate investment trust (REIT dividends – this has special tax treatment)
What doesn’t count as qualified business income?
- C corporation income
- Wages you pay yourself (like S Corp salaries)
- Investment income (capital gains or losses, dividends)
- Interest income not related to the business
- Income earned outside the U.S. from foreign businesses
- Guaranteed payments from a partnership
Check out the IRS website for a more extensive list of what is and is not included in QBI.
Limitations on QBI
If a business is a Specified Service Trade or Business (SSTB) like law, health, accounting, investing, consulting, etc., and taxable income is above certain thresholds – ($383,900 MFJ/$191,950 single in 2024), then:
- SSTB deduction is phased out, and
- Fully disallowed if income exceeds upper limit ($483,900 MFJ/$241,951 single)
Killingsworth Spencer is here to help our clients fully understand their options to save taxes today and in the future. We have CPAs, Enrolled Agents, Bookkeepers, and payroll specialists on staff to help our clients with accounting and tax-related matters. For more information or to schedule an appointment, please call us at 770-552-8286. Visit us at www.killingsworthspencerllc.com
- Disclaimer: This post is for general information only and should not be taken as legal or financial advice.