Following the passage of the 2017 Tax Cut and Jobs Act (“TCJA”) the tax code changed significantly. The four biggest changes that was a result of the TCJA are:
1- Standard deduction was raised to $12,200 and is adjusted on a yearly basis based on inflation for a single tax filer;
2- State and Local Tax (“SALT”) deduction is limited to $10,000 ( This includes property taxes and taxes paid to the state that you reside in) or $5,000 if Married filing Separately.
3- Qualified Business Income Deduction or “QBI” allows pass through entities such as S-Corporations, Sole proprietors, and partnerships to receive an additional 20% deduction from the pass-through taxable income.
4- C-corporations taxable income was changed from a tier based gradual tax as individuals are taxed to a flat 20%
Update from IRS concerning QBI.
The IRS has just released an article stating that roughly around 13,000 passe-through entities QBI deductions was erroneous or mistakenly given and are now being examined by the IRS. The additional deductions or “error” is roughly in the ballpark of $57 million dollars. Tax professionals have been waiting for issues to begin as the first year it was introduced (if you remember the issues with the Affordable Health Care Act issues with filing taxes) was chaotic. As this type of deduction was never allowed or thought of prior to the passage of the TCJA. $57 Million Dollar Error
If your business is receiving a notice concerning this deduction or an examination by the IRS consult a tax attorney or tax professional. If you would like to know more or require tax planning and compliance contact K & S Law Group located in Newport Beach, California at (800) 982-3880.