How does a rental property fit into your business tax situation? If you own an LLC with several rental properties, it may help to understand how your rental can qualify as a business income deduction. Qualified Business Income Deduction Rental Property is significant on your tax return this year. Speaking with your trusted CPA and business advisor, you will want to start planning about a year in advance
What is the Qualified Business Income Deduction (QBID) for a rental property?
The new Qualified Business Income Deduction (QBID) for rental property is a valuable tax break that can save you a lot of money. The QBID allows you to deduct up to 20% of your rental income from your taxable income, which can add up to significant savings.
– The Basics:
The QBID is a new deduction that was created as part of the Tax Cuts and Jobs Act of 2017. It is made up of two key components. The first is “Qualified Business Income” or QBI, and the second is “Real Estate Investment Trust Dividends & Publicly Traded Partnership Income” or REIT/PTP. From the IRS newsroom, QBI is defined as up to 20% of business income in a given year. Secondly, REIT/PTP is any income earned either through a real estate investment trust or a publicly traded partnership.
How Does Qualified Business Income Relate to Your Tax Plan?
First, you might need a little background on qualified business income. The Tax Cuts and Jobs Act of 2017 introduced a new deduction for qualified business income (QBI) from pass-through entities, including partnerships, S corporations, and sole proprietorships. The deduction is available to individuals, estates, and trusts and is equal to 20% of the taxpayer’s QBI. The deduction is taken against income tax, not against self-employment tax.
Qualified Business Income QBI
Qualified Business Income or QBI is the net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business. The deduction is limited to the greater of 50% of the W-2 wages paid by the business or 25% of the W-2 wages paid by the business plus 2.5% of the cost of qualified property.
Qualified property is defined as tangible, depreciable property that is used in the production of QBI and that is owned by the taxpayer for more than one year. The property must be used in the business for at least 50% during the period of ownership. If not, then the property should not be considered qualified when factoring in business expenses.
Tax Planning
Additionally, your qualified business income can change from year to year depending on business activity. If you didn’t have much activity in one year, you may need to perform tax planning ahead of time. You won’t want to miss out on the advantages of any potential tax write-offs. As your business grows from year to year, you don’t want to be caught off guard. Furthermore, if you don’t take advantage of the deductions, you might end up owing a lot more in tax liability than you would expect.
Bookkeeping and QBI
In order to keep track of your business income that could qualify for deductions, you need to perform regular bookkeeping. If time is at a premium, you should consider a bookkeeping resource to keep you squared away in case anything comes up. Don’t stress about tracking all those receipts and keeping them stored in some shoebox, only to be forgotten about. Alternatively, use professional software readily available to streamline the whole process. Forgo the old-fashioned and save additional time and resources at year-end tax preparation. Following this pattern, you will be ready to determine what amounts could qualify for a business deduction.
Bookkeeping Software Advantages for Your Business
More than just bookkeeping, you should consider the advantages offered by bookkeeping software packages. Many are readily available and integrated into your existing sales and CRM platforms. Are you looking for a way to manage your business finances more effectively? If so, you may want to consider using bookkeeping software. Bookkeeping software can help you keep track of your expenses, income, and other financial data. Here are some of the advantages of using bookkeeping software for your business.
1. Increased accuracy and efficiency.
Bookkeeping software can help you track your finances more accurately and efficiently. This can help you save time and money.
2. Improved decision-making ability.
By tracking your expenses and income, you can make better decisions about how to grow your business.
3. Easier tax preparation.
By keeping track of your financial data throughout the year, you can make tax preparation much easier.
4. Better organization.
By keeping your financial data organized, you can easily find what you need when you need it. This can help you save time and money.
5. Greater peace of mind.
Knowing that your business is organized can give you a greater sense of freedom. Instead of worrying all the time, you can ease off your concerns and focus more on giving back your best to the business.
How CPA services Can Help You Determine Qualified Business Income Deduction?
CPA Services are very productive in answering your tax questions. You need to be able to look at what you made, but your first few times reading your financial statements can be difficult, even cryptic to understand. Instead of spending hours watching Youtube or reading books about financial statements. Your trusted business partner and CPA can help you read through and define what you need to know. As far as qualified business income deductions go, you will have much better success on this year’s tax return with your CPA at your side.
Wrap Up
Don’t just automatically assume that the government will give you deductions, you need to prove that you have qualified business income deductions. Working together with your trusted accounting service, you can unlock further deductions and reduce this year’s tax liability. This is huge in helping boost your tax return, or at the very least cutting down the amount you owe to the IRS. Don’t miss out on helping your case this year, making sure you take every opportunity for deductions.
