One of the more beneficial provisions of the 2017 Tax Cuts and Jobs Act for individuals and small business owners is the new qualified business income (QBI) deduction under Section 199A. Eligible taxpayers may be entitled to a deduction of up to 20 percent of QBI, a significant tax savings for owners of sole proprietorships, partnerships, LLCs, S corporations, trusts and estates.
To reap these benefits, though, many complex regulations and procedures must be followed, which can be very time-consuming. The Section 199A deduction is a complicated deduction with many reporting and record-keeping obligations. For instance, for those with more than one trade or business, each trade or business is generally treated separately when applying the limitations on calculation of QBI.
The good news is there are proposed regulations that would allow individuals to aggregate trades or businesses, treating the aggregate as a single trade or business for QBI purposes. At the same time, the reporting and disclosure requirements require additional record-keeping. This includes identifying and reporting several additional items on Schedules K-1, disclosing allocable shares of QBI and other items of income and basis, identifying qualifying assets, correct basis and depreciation periods, and allocation among owners. Failure to comply with these record-keeping and reporting requirements could result in the IRS disallowing the aggregation and a reduced deduction amount.
While this QBI deduction is certainly beneficial and we recommend taking advantage of it, it does require more time on our end to accurately and thoroughly report all the information required by the IRS. Please know that we are committed to providing you the most accurate and thorough tax advice and preparation.