Ep 99: Is Your Business Missing Out on Thousands in Tax Savings?
Many small business owners miss out on significant tax savings each year simply because they’re unaware of certain deductions. One of the most overlooked opportunities is the Qualified Business Income (QBI) deduction. This powerful tax break, introduced in the 2017 Tax Cuts and Jobs Act, allows eligible business owners to deduct up to 20% of their qualified business income—but many fail to claim it due to poor planning or lack of proper advisory support.
In a recent episode of Live Life Liberated, hosts Greg Klipstein and Samantha Lawrence break down the QBI deduction, explain why it’s often missed, and discuss how business owners can maximize their tax savings.
Read on to learn more.
What Is the QBI Deduction?
The QBI deduction was created as a response to corporate tax cuts that primarily benefited large businesses. The goal was to ensure small business owners—who employ over 75% of the U.S. workforce—could also receive tax relief.
Eligible business owners can deduct up to 20% of their qualified business income, significantly lowering their taxable income. However, not all businesses qualify, and certain income limitations and restrictions apply.
Who Qualifies?
- Sole proprietorships
- Partnerships
- S corporations
- Some real estate investors
Who Doesn’t Qualify?
- C corporations
- High-income earners in specified service trades (lawyers, doctors, consultants) above income thresholds
Despite its potential, many businesses fail to claim this deduction. Why? Let’s explore the most common reasons.
Why Do Business Owners Miss the QBI Deduction?
Many small business owners either don’t know about the deduction or assume it doesn’t apply to them. Here are the biggest reasons why it’s often overlooked:
1. Incorrect Business Structure
One of the main reasons businesses miss out on the QBI deduction is because their entity type doesn’t qualify. C corporations, for example, are not eligible. Some S corporations may also miss out if they don’t allocate income correctly between salaries and distributions.
2. Poor Tax Planning
Many business owners focus only on year-end tax preparation rather than proactive tax planning throughout the year. Without a strategy, they may exceed income limits that phase out the deduction.
3. Lack of Proper Advisory Support
If your accountant or tax advisor isn’t actively looking for ways to minimize your tax burden, you could be losing money. Some advisory teams don’t fully understand how to structure businesses to maximize deductions like QBI.
4. Failure to Amend Past Tax Returns
Did you miss the deduction in prior years? You may still have time to correct it. Businesses can amend previous tax returns and claim unclaimed deductions, putting real money back in their pockets.
How to Ensure You Maximize Your QBI Deduction
To take full advantage of the QBI deduction, business owners need a proactive approach. Here’s how you can ensure you’re getting the most out of this tax break:
1. Work with a Knowledgeable Tax Advisor
A tax professional who specializes in small business taxation can help identify whether you qualify and how to structure your income to maximize the deduction.
2. Review Your Business Structure
If your current structure isn’t allowing you to claim the deduction, it may be time to restructure your business entity. Switching from a C corporation to an S corporation or partnership might make sense.
3. Monitor Income Levels
Since the QBI deduction phases out at higher income levels, keeping taxable income below the threshold is key. Tax-efficient strategies, such as retirement contributions or reinvesting in the business, can help manage taxable income.
4. Correct Missed Deductions
If you didn’t claim the QBI deduction in previous years, it may not be too late. Talk to your tax professional about amending past returns to recover lost savings.
5. Consider the Bigger Picture
Missing the QBI deduction could be a sign that you’re also missing other tax-saving opportunities, such as retirement plan contributions, business expense deductions, and depreciation benefits. A holistic tax strategy is essential.
Should You Reevaluate Your Advisory Team?
If your current CPA or financial advisor hasn’t discussed the QBI deduction with you, it might be time to find a better advisory team. Many business owners don’t realize they’re overpaying in taxes simply because their advisory team isn’t proactive enough.
A strong tax and financial team should:
- Regularly review tax-saving opportunities with you
- Help you structure your business for maximum deductions
- Advise you on income thresholds and tax-efficient strategies
- Ensure you don’t leave money on the table
Take Action Today
The complexity of tax laws often leads to missed opportunities, but the QBI deduction is too valuable to ignore. Don’t let poor planning or lack of advisory support cost you thousands in unnecessary taxes.
To learn more about optimizing your tax strategy, tune in to Live Life Liberated with Centura Wealth Advisory. Listen to the full episode here.
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