TOTAL, Money Tree’s in-depth financial planning software, now includes the Qualified Business Income (QBI) deduction available to taxpayers engaged in a qualified trade or business. The new provision introduced in the recent tax reform allows a deduction for up to 20% of QBI from sole proprietorships, limited liability companies (LLCs), S corporations, partnerships, real estate investments, trusts, and estates.
At the most basic level, the deduction amounts to 20% of the taxpayer’s qualified business income. The full calculation surrounding deduction is anything but basic, which may reduce or eliminate the potential deduction.
TOTAL’s planning data offers a new item, Qualified Business Income Deduction, under the Tax Details tab of the Taxes section, to capture the amount of deduction available to clients. TOTAL will not attempt to calculate the deduction due to the complex rules surrounding the deduction. Instead, TOTAL will solely capture the deduction amount for tax purposes.
The amount of the deduction entered under Qualified Business Income reduces the client’s taxable income directly. A “Qualified Business Income Deduction” line will display on the Current Year Tax Report with the amount of the deduction directly below itemized deduction.
Golden Years, TOTAL’s cash-flow-based planning approach, completes a full tax analysis each year of the projection. The qualified business income deduction amount is folded in with the itemized/standard deduction amount on the Taxable Income Analysis, reducing taxable income by the amount of the deduction.
Like a majority of the tax reform changes, the Qualified Business Income Deduction is not permanent and scheduled to sunset after 2025, reverting to the law in effect before the TCJA.
TOTAL includes an option to assume the sunset provision takes place, or that the sunset does not happen and the rule changes under the TCJA continue beyond 2025. A handy cheat sheet highlights the major rule changes, provides the new tax rules compared rules in place prior to the TCJA, and indicates which provisions are scheduled to sunset.
Learn More about the Qualified Business Income Deduction – Helpful Resources:
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Understanding the new Sec. 199A business income deduction – thetaxadviser.com
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Mechanics of the new Sec. 199A deduction for qualified business income – journalofaccountancy.com
- Understanding The New Pass-Through Business Deduction For Qualified Business Income, – kitces.com
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