deduction - Linkenheimer LLP CPAs & Advisors

Maximize the QBI Deduction Before It’s Gone

The qualified business income (QBI) deduction is available to eligible businesses through 2025. After that, it’s scheduled to disappear. So if you’re eligible, you want to make the most of the deduction while it’s still on the books because it can potentially be a big tax saver.

Deduction basics

The QBI deduction is written off at the owner level. It can be up to 20% of:

QBI earned from a sole proprietorship or single-member LLC that’s treated as a sole proprietorship for tax purposes, plus
QBI from a pass-through entity, meaning a partnership, LLC that’s treated as a partnership for tax purposes or S corporation.

How is QBI defined? It’s qualified income and gains from an eligible business, reduced by related deductions. QBI is reduced by: 1) deductible contributions to a self-employed retirement plan, 2) the deduction for 50% of self-employment tax, and 3) the deduction for self-employed health insurance premiums.

Unfortunately, the QBI deduction doesn’t reduce net earnings for purposes of the self-employment tax, nor does it reduce investment income for purposes of the 3.8% net investment income tax (NIIT) imposed on higher-income individuals.

Limitations

At higher income levels, QBI deduction limitations come into play. For 2024, […]

By Linkenheimer LLP|2024-03-11T16:52:39+00:00March 11th, 2024|business, deduction|0 Comments

Update on Depreciating Business Assets

The Tax Cuts and Jobs Act liberalized the rules for depreciating business assets. However, the amounts change every year due to inflation adjustments. And due to high inflation, the adjustments for 2023 were big. Here are the numbers that small business owners need to know.

Section 179 deductions

For qualifying assets placed in service in tax years beginning in 2023, the maximum Sec. 179 deduction is $1.16 million. But if your business puts in service more than $2.89 million of qualified assets, the maximum Sec. 179 deduction begins to be phased out.

Eligible assets include depreciable personal property such as equipment, computer hardware and peripherals, vehicles and commercially available software.

Sec. 179 deductions can also be claimed for real estate qualified improvement property (QIP), up to the maximum allowance of $1.16 million. QIP is defined as an improvement to an interior portion of a nonresidential building placed in service after the date the building was placed in service. However, expenditures attributable to the enlargement of a building, elevators or escalators, or the internal structural framework of a building don’t count as QIP and usually must be depreciated over 39 years. There’s no separate Sec. 179 deduction limit for […]

By Linkenheimer LLP|2023-09-11T19:05:04+00:00September 11th, 2023|business, deduction, depreciation|0 Comments

Starting a Business? How Expenses Will Be Treated On Your Tax Return

Government officials saw a large increase in the number of new businesses launched during the COVID-19 pandemic. And the U.S. Census Bureau reports that business applications are still increasing slightly (up 0.4% from April 2023 to May 2023). The Bureau measures this by tracking the number of businesses applying for Employer Identification Numbers.

If you’re one of the entrepreneurs, you may not know that many of the expenses incurred by start-ups can’t be currently deducted on your tax return. You should be aware that the way you handle some of your initial expenses can make a large difference in your federal tax bill.

Handling expenses

If you’re starting or planning to launch a new business, here are three rules to keep in mind:

Start-up costs include those incurred or paid while creating an active trade or business — or investigating the creation or acquisition of one.
Under the tax code, taxpayers can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs in the year the business begins. As you know, $5,000 doesn’t go very far these days! And the $5,000 deduction is reduced dollar-for-dollar by the amount by which your […]

By Linkenheimer LLP|2023-07-03T17:20:36+00:00July 3rd, 2023|business, deduction, expensing|0 Comments

Advantages and Disadvantages of Claiming Big First-Year Real Estate Depreciation Deductions

Your business may be able to claim big first-year depreciation tax deductions for eligible real estate expenditures rather than depreciate them over several years. But should you? It’s not as simple as it may seem.

Qualified improvement property

For qualifying assets placed in service in tax years beginning in 2023, the maximum allowable first-year Section 179 depreciation deduction is $1.16 million. Importantly, the Sec. 179 deduction can be claimed for real estate qualified improvement property (QIP), up to the maximum annual allowance.

QIP includes any improvement to an interior portion of a nonresidential building that’s placed in service after the date the building is placed in service. For Sec. 179 deduction purposes, QIP also includes HVAC systems, nonresidential building roofs, fire protection and alarm systems and security systems that are placed in service after the building is first placed in service.

However, expenditures attributable to the enlargement of the building, any […]

By Linkenheimer LLP|2023-06-19T15:38:01+00:00June 19th, 2023|deduction, deductions, real estate|0 Comments

Traveling For Business This Summer? Here’s What You Can Deduct

If you and your employees are traveling for business this summer, there are a number of considerations to keep in mind. Under tax law, in order to claim deductions, you must meet certain requirements for out-of-town business travel within the United States. The rules apply if the business conducted reasonably requires an overnight stay.

Note: Under the Tax Cuts and Jobs Act, employees can’t deduct their unreimbursed travel expenses on their own tax returns through 2025. That’s because unreimbursed employee business expenses are “miscellaneous itemized deductions” that aren’t deductible through 2025.

However, self-employed individuals can continue to deduct business expenses, including away-from-home travel expenses.

Rules that come into play

The actual costs of travel (for example, plane fare and cabs to the airport) are deductible for out-of-town business trips. You’re also allowed to deduct the cost of meals and lodging. Your meals are deductible even if they’re not connected to a […]

By Linkenheimer LLP|2023-06-05T18:48:34+00:00June 5th, 2023|business, deduction, deductions, travel|0 Comments