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What constitutes QBI?

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  • What constitutes QBI?

    For passthrough income as a member of a LLC, wondering what parts of compensation is classified as QBI? Compensation for member consists of 1) guaranteed compensation for services rendered as $x per hour provided, 2) draw of profits, 3) payment for individual plan health insurance premium, 4) malpractice coverage premium paid directly by LLC, 5) profit share contribution to 401k. Trying to figure out how much of compensation can qualify for the 20% deduction. Trying to keep QBI below the phase out amount.

  • #2
    for a partnership it’s distributions of profit. Guaranteed comp is not QBI

    hence it’s advantageous in maximizing QBI deduction for partners to receive income as profit distributions and not as guaranteed comp

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    • #3
      Originally posted by ShredtheGnar View Post
      Trying to figure out how much of compensation can qualify for the 20% deduction. Trying to keep QBI below the phase out amount.
      It is not clear from this statement that you understand that the QBI phase out range is based on taxable income.

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      • #4
        Originally posted by spiritrider View Post
        It is not clear from this statement that you understand that the QBI phase out range is based on taxable income.
        Your assumption is correct. I don’t have a clear understanding of the mechanics of all this. Trying to figure it all out so there are no surprises come tax time. Have been guesstimating quarterly tax payments. Is a new group and this is the 1st year. Now realise that item 5 is non-taxable. Was not sure how some of the other points are viewed.

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        • #5
          Partnership agreements are especially important if you may fall in QBI deduction range. However, once you’re a partner, presumably at least a few of you will be in a tax bracket too high to qualify for the QBI deduction and it is very tricky (practically impossible) to write an agreement that benefits everyone. For example, some docs has a spouse who is a doc, others don’t. If you are GI or cardio, for ex, you’re probably wasting your time v primary care or peds.

          In the situation where you’ll be making too much, even more important to word the agreement to allow you to take UPE (Unreimbursed Partnership Expenses), which I have a strong sense that a lot of agreements are not qualified to allow.
          Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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