When you have a business, all year is tax season. You always have to be on top of your tax liabilities and managing your accounts to prepare for when you have to file again. There is a range of deductions that you could take relating to your Michigan business. One of the possible deductions that you may take is the qualified business income deduction.
Also known as section 199A, this deduction, according to the IRS, was new for the 2019 tax year. You can deduct up to 20% of your qualified business income, depending on your total income. However, what qualifies as QBI depends on the type of business you have, the unadjusted basis immediately after acquisition qualified property you own and the amount of wages you pay W-2 workers.
Your business cannot be a C corporation if you wish to take this deduction. Section 199A is also not available if your income is over the set limit, which will vary depending on the year. Finally, you do not qualify for the deduction if you are an employee of the business you own.
This deduction is quite confusing since there are many exceptions and other details that could make you ineligible. In addition, what exactly counts as QBI is also full of exceptions and criteria. For example, QBI does not include compensation from an S corporation or foreign currency gains or losses.
There is a worksheet as part Form 1040 that will help you work out the calculations once you figure out if you qualify to take the deduction and what your QBI amount is. This information is for education and is not legal advice.