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The qualified business income (QBI) deduction allows owners of pass-through entities, including sole proprietors, to deduct up to 20% of their QBI. The deduction is set to expire in 2026, at which point income would be taxed at owners\u2019 individual income tax rates. (However, with Republicans in control of the White House, the Senate and the House of Representatives beginning in 2025, tax experts don\u2019t expect the deduction to\u00a0expire.)<\/p>\n
To make the most of the QBI deduction for 2024, consider increasing your W-2 deductions or purchasing qualified property. You also can avoid applicable income limits on the deduction through timing tactics.<\/p>\n
Income and expense timing<\/strong><\/p>\n Timing the receipt of income and payment of expenses can cut your taxes by reducing your taxable income. For example, if you expect to be in the same or a lower income tax bracket next year and use the cash method of accounting, consider delaying your customer billing to push payment into 2025. Accrual method businesses can delay shipments or services until early January for the same effect. Similarly, you could pre-pay bills and other liabilities due in\u00a02025.<\/p>\n Bonuses often make a prime candidate for careful timing. A closely held C\u00a0corporation might want to reduce its income by paying bonuses before year-end. This applies to cash-method pass-through businesses, too. Accrual method businesses generally can deduct bonuses in 2024 if they\u2019re paid to nonrelatives within 2\u00bd months after the end of the tax\u00a0year.<\/p>\n Asset purchases <\/strong><\/p>\n There\u2019s still time to make asset purchases and place them into service before year-end. You can then deduct a big chunk of the purchase price, if not the entire amount, for\u00a02024.<\/p>\n The Section\u00a0179 expensing election allows 100% expensing of eligible assets in the year they\u2019re placed in service. Eligible assets include new and used machinery, equipment, certain vehicles, and off-the-shelf computer software. You also can immediately expense qualified improvement property (QIP). This includes interior improvements to your facilities and certain improvements to your roof, HVAC, and fire protection and security systems.<\/p>\n Under Sec.\u00a0179, in 2024, the maximum amount you can deduct is $1.22\u00a0million. The deduction begins phasing out on a dollar-per-dollar basis when qualifying purchases exceed $3.05\u00a0million. The amount is also limited to the taxable income from your business activity, though you can carry forward unused amounts or apply bonus depreciation to the\u00a0excess.<\/p>\n For this year, bonus depreciation allows you to deduct 60% of the purchase price of tangible property with a Modified Accelerated Cost Recovery System period of no more than 20\u00a0years (such as computer systems, office furniture and QIP). The allowable first-year deduction will drop by 20% per subsequent year, zeroing out in 2027, absent congressional action. Bonus depreciation isn\u2019t subject to a taxable income limit, so it can create net operating losses (NOLs). Under the TCJA, NOLs can be carried forward only and are subject to an 80% limitation.<\/p>\n Important:<\/strong> Depreciation-related deductions can reduce QBI deductions, making a cost-benefit analysis vital.<\/p>\n Research credit<\/strong><\/p>\n The research credit (often referred to as the \u2018research and development,\u2019 \u2018R&D\u2019 or \u2018research and experimentation\u2019 credit) is a frequently overlooked opportunity. Many businesses mistakenly assume they\u2019re ineligible, but it\u2019s not just for technology companies or industries known for innovation and experimentation \u2014 or for companies that show a profit. It may be worth investigating whether your business has engaged in qualified research this year or in previous years.<\/p>\n The credit generally equals the sum of 20% of the excess of a business\u2019s qualified research expenses for the tax year over a base amount. The Inflation Reduction Act made the research credit even more valuable for qualified small businesses. It doubled the credit amount such businesses can apply against their payroll taxes, from $250,000 to $500,000.<\/p>\n Take action<\/strong><\/p>\n No business wants to pay more taxes than it needs to. We can help ensure you\u2019re doing everything possible to minimize your taxes with these opportunities and others.<\/p>\n \u00a9 2024<\/em><\/p>\n <\/body> The qualified business income (QBI) deduction allows owners of pass-through entities, including sole proprietors, to deduct up to 20% of their QBI. The deduction is set to expire in 2026, at which point income would be taxed at owners\u2019 individual income tax rates. (However, with Republicans in control of the White House, the Senate and […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,59,10],"tags":[8,11,12],"class_list":["post-17185","post","type-post","status-publish","format-standard","hentry","category-articles","category-etra","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17185","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=17185"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17185\/revisions"}],"predecessor-version":[{"id":17186,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/17185\/revisions\/17186"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=17185"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=17185"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=17185"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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