Fortunately, the net operating loss (NOL) deduction can turn the pain of a loss this year into tax savings for next year and, perhaps, beyond.
Continue readingNOL Deductions Can Ease the Pain of Business Losses
The QBI Deduction: Good News for Eligible Business Owners
If you’re a small business owner or you’re self-employed, there are changes on the tax front. The Section 199A qualified business income (QBI) deduction, a powerful tax-saving opportunity since 2018, was initially set to expire in 2025. But the recent enactment of the One Big Beautiful Bill Act (OBBBA) means it’s not only here to stay, it’s also been modified.
What Is the QBI Deduction?
This tax break allows eligible business owners to deduct up to 20% of their QBI from their taxable income. It applies to owners of pass-through entities, including S corporations, partnerships and, usually, LLCs, as well as sole proprietors.
QBI typically includes net business income but excludes investment capital gains and losses, dividends, interest income, owner wages, and guaranteed payments to partners or LLC members. And, you don’t need to itemize deductions to claim this deduction.
How Income Affects QBI Eligibility
While the full 20% deduction is available to many, it’s subject to certain limits that phase in based on taxable income and other factors. Your tax advisor can help with this.
If your business is a specified service trade or business (SSTB), your deduction reduces gradually as your income increases beyond the threshold, $197,300 ($394,600 if you’re married filing jointly) for 2025. If your income exceeds the top of the income range, $247,300 ($494,600 if you’re filing jointly) for 2025, you lose the deduction entirely.
SSTBs include professions like law, medicine, accounting, financial planning and consulting, but not engineering or architecture.
Non-SSTBs face other limitations. If their income exceeds the top of the range, their deduction can’t exceed the greater of their share of:
- 50% of the amount of W-2 wages paid to employees by the qualified business during the tax year, or
- The sum of 25% of W-2 wages plus 2.5% of the cost (not reduced by depreciation taken) of qualified property.
If their income falls within the range, these limits apply only partially. If the rules and thresholds seem daunting, lean on us.
Better News for 2026 and Beyond
Here’s what pass-through business owners can look forward to:
- The top of the income range for the additional limits increases from $50,000 above the threshold to $75,000 above the threshold (from $100,000 to $150,000 for joint filers).
- A new minimum QBI deduction of $400 is introduced for taxpayers earning at least $1,000 in QBI, provided they materially participate in the business.
As a result of these changes, more business owners will be eligible for the deduction in 2026 and beyond, and some owners’ deductions will increase.
Bottom Line
The QBI deduction can significantly reduce your tax bill. With the deduction now made permanent and set to improve in 2026, it’s worth revisiting your tax strategy with the help of a qualified advisor. Contact the office to ensure you’re making the most of this valuable opportunity.
408-252-1800
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The Tax Impact of Business Bartering
Bartering is simply the exchange of services or property, and it’s a taxable event. For example, if a computer consultant trades services…
Continue readingCombine a Business Outing with Tax Breaks
Summer is here, and you may be planning a picnic or other outing for your employees. When doing so, keep tax deductions in mind. Most entertainment expenses aren’t deductible, and business meals are generally subject to a 50% deduction limit. But, you may be able to deduct 100% of employee party costs. The event must be for your entire staff and not be “lavish or extravagant.” Deductible costs include food, beverages, live music and venue rentals.
Detailed invoicing and recordkeeping are a must. Before sending out invitations, contact the office about maximizing your tax deduction.
408-252-1800
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CA Passthrough Entity Tax: Estimate Due June 16th
If you have a passthrough entity (Partnership, LLC, S Corporation) and would like the opportunity to make the Passthrough Entity Tax election for 2025, you have a California PTET deposit due for your entity on Monday, June 16th.
- If your entity made the election in 2024, your PTET deposit due on June 16th is 50% of your total 2024 Passthrough Entity Tax amount. You can find this amount on Form 3893 (PTE) in your 2024 California business entity tax return: it will indicate a due date of June 16th.
- If your entity did NOT make the election in 2024, you need to make a payment of $1,000 by June 16th for the opportunity to elect in 2025. This voucher is Form 3893 (PTE).
- If your entity has not yet filed its 2024 tax return, but you intend to make the election for 2025, follow instructions that were provided to you with your extension documents for the amount to pay for your estimated PTET deposit by the June 16th due date.
- Please note that making this estimated payment does not lock your entity into making the 2025 election. However, your entity will be unable to make the election if you do not make this payment.
Instructions for Making Estimated Payment
Your PTET deposit payment can be made via the Franchise Tax Board Direct Pay website. We recommend that you make the payment using this method and send your preparer the confirmation for your tax files once completed.
We also recommend making this payment ahead of time to avoid any deadline related issues with the FTB Direct Pay website. If you mail the payment, please send certified and save a copy of the certified receipt.
FTB Direct Pay:
- California Web Pay for Business
- Enter entity type
- Enter entity ID
- Enter Contact Info
- Select Payment Type –> Passthrough Entity Elective Tax
- Be sure to choose 1/1/25 – 12/31/25 as period beginning and end date
- Save down payment confirmation
Mailing Address:
Franchise Tax Board
PO Box 942857
Sacramento, CA 94257-0531
If you have any additional questions that were not covered above, let us know by reaching out to your preparer or our front desk.
408-252-1800
Your Business Tax Information at Your Fingertips
The IRS Business Tax Account provides information to sole proprietors, partners of partnerships, and shareholders of S corporations and C corporations. Eligible business taxpayers who set up an account can use the hub to make electronic payments, schedule or cancel future payments and access other tools. They can also view their current balances, payment history, other business tax records, and digital copies of select IRS notices.
A newly added Income Verification Express Service enables lenders to easily access the income records of a business borrower, provided the taxpayer has authorized access. Here’s more: https://www.irs.gov/businesses/business-tax-account
Got questions? Contact Us
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Unlocking Tax Savings: The Benefits of a Cost Segregation Study
A cost segregation study allows a business property owner to accelerate depreciation deductions. That, in turn, enables the owner to reduce current taxable income and increase cash flow.
A cost segregation study combines accounting and engineering techniques to identify building costs that are properly allocable to tangible personal property rather than real property. It then allows the personal property to be reclassified for tax purposes and deducted over a much shorter depreciation period. This strategy has been consistently upheld in the courts.
Fundamentals of Depreciation
Business buildings generally have a 39-year depreciation period. Typically, companies depreciate a building’s structural components (such as walls, windows, HVAC systems, plumbing and wiring) along with the building. Personal property (such as equipment, machinery, furniture and fixtures) is eligible for accelerated depreciation, usually over five or seven years.
Often, businesses allocate all, or most, of their buildings’ acquisition or construction costs to real property, overlooking opportunities to allocate costs to shorter-lived personal property or land improvements. Items that appear to be “part of a building” may, in fact, be personal property. Examples include removable wall and floor coverings, removable partitions, awnings, canopies, window treatments and signs.
Shine a Light on Outdoor Savings
Rules for outdoor lighting, parking lots, landscaping and fencing are tricky but can still lead to current tax deductions in certain situations. These expenditures are generally treated as capital improvements, subject to the 15-year depreciation rule. For instance, if you replace your business lighting to upgrade it or provide greater security at night, it qualifies as a deductible capital improvement. Similarly, landscaping projects designed to boost your curb appeal or provide environmental benefits are considered capital improvements.
On the other hand, routine maintenance (such as the costs of mowing and watering the lawn surrounding your business building) typically fall into the category of deductible business expenses, just like minor repairs.
Worth Checking Out
Although the relative costs and benefits of a cost segregation study will depend on your particular facts and circumstances, it can be a valuable investment.
And, under the Tax Cuts and Jobs Act, the potential benefits of a cost segregation study may be even greater than they were years ago because of enhancements to certain depreciation-related tax breaks.
Contact the office for further details.
408-252-1800
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