3 Ways the QBI Deduction is Easy Money for Freelancerstax tips | February 15, 2019 | By Susannah McQuitty
If you run your own business and still haven’t heard about the Qualified Business Income (QBI) deduction, you’re in for some seriously good news!
Here’s the backstory: When the Tax Cuts and Jobs Act of 2017 (aka tax reform) went into effect, big corporations got a pretty hefty tax break. Congress saw the need to provide a comparable tax break for the “little guys” out there running their own businesses, and the QBI deduction was born.
A whopping 20% deduction off your qualified business income
That’s no chump change, but how exactly does it work?
Let’s say you earned $1,000 of net profit from your photography business. With the QBI deduction, you could get a 20% tax deduction on that business income—so instead of being taxed on $1,000, you’d only be taxed on $800.
No extra forms required
For some tax breaks, you have to fill out and attach an extra form to claim the tax savings (for example, education credits are claimed on Form 8863). You may even have to itemize deductions to claim certain individual deductions, which takes time and record searching.
The best part about the QBI is that it’s calculated automatically when you file with 1040.com. You don’t have to fill out an extra form or do backflips to earn it—just fill out your Schedule C to report business income and expenses as you’ve always done, and the deduction will be triggered in the background and reported directly on line 9 of Form 1040.
Multiple business types qualify
Qualifying taxpayers include those with a domestic business operated as a sole proprietorship or income received through a partnership (as a partner), S corporation (as a shareholder), or from a trust or estate (as a beneficiary). It also includes farms and certain rental properties that rise to the level of a trade or business.
There are some extra limitations for pass-through entities (e.g., partnerships and S corporations) as opposed to sole proprietorships. If your business is a pass-through entity, check out the requirements on our Tax Reform 101 page.
So are there any sorts of businesses that don’t qualify? Not necessarily, but the deduction does phase out for anyone involved in a Specified Service Trade or Business (SSTB). An SSTB is any business activity where the revenue is generated from a specialized skill or service (health, law, medicine, etc.). The QBI deduction begins to phase out for SSTBs at $315,000 for joint filers, $207,500 for head of household filers, and $157,500 for single filers.
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1040.com has a soft spot for freelancers, so we’ve worked especially hard to streamline your business income and expense information—and when you combine that with one of the most competitive freelancer packages on the market, you’ve got a powerhouse to file your freelancer taxes without breaking the bank!