For small business owners, your 20% savings is just one form away. Qualifying small business owners who complete IRS tax Form 8995 can claim the qualified business income deduction (QBID). This deduction allows pass-through business owners to deduct up to 20% of their share of qualified business income.
As a small business, if you’re looking to save on taxes with IRS Form 8995, we have answers for you. Continue reading to learn more.
What Is IRS Form 8995?
IRS Form 8995 lets owners of pass-through entities; S corporations, LLCs, S corporations, or sole proprietorships-use to take the qualified business income (QBI) deduction. This is also known as Section 199A deduction or the pass-through.
As part of the 2017 Tax Cuts and Jobs Act, the QBI deduction was originated following the 14% corporate tax rate reduction. However, only companies registered as C corporation benefited from these savings, which was 5% of small businesses.
Other business types, such as LLCs, and sole proprietorship, saw no provisions from the TCJA. So, legislators developed QBID as a response to this absence of tax savings for other businesses, excluding C corporations.
How To Claim The Pass-Through Deduction?
To automatically calculate personal savings and assess your QBI eligibility, use the same online tax services that most people use. If you use this option, inputting your data carefully will help you avoid missing possible savings. Or having to redo your taxes because of mistakes.
First, you will need to report your business income and expenses on Schedule C before you start filling out Form 8995 and qualifying for the QBI deduction. Also, your adjusted gross income on Form 1040 must be completed beforehand. Whether you itemize or take the standard deduction, you can still take the QBI deduction.
The key is to simplify the filling process, have a basic grasp of the pass-through deduction, and the factors that affect whether and how you save.
Given that Form 8995 is a relatively new form, if you’re unsure how to complete it or Form 8995-A, contact the tax experts at The Ray Group. Our tax professionals will help you understand the ins and out of the qualified business income deduction.
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