End of Year Tax Planning: Overlooked Deductions (Part 4)


Hey, welcome. This is part four of Overlooked Deductions. If you’ve missed part one, two, or three, go back and take a look at those videos. You might be missing some deductions this year. Now, today, I’m going to talk about a deduction that you can easily overlook, which is your bonus. And now, this deduction means even more with the 2018 tax changes. So, congratulations. This year has been awesome year for you. Your net income from your business is $169,500. You paid yourself $50,000 in wages. Based on that, your income was $219,500.

Now, this year, we do have something called the Qualified Business Income Deduction. And what is the QBI? QBI is a deduction given to non C-corp owners in order to reduce their tax rate. I have had other videos on QBI so if you want to go back to my past videos and look at the details of QBI, feel free to do that. But today, I’m not going to go into the specifics of QBI. And also, you can also enroll in a tax course and we’ll review the part of QBI and just to see what that is. What I’m going to focus on in this video is how the QBI and paying yourself wages actually affects your QBI deduction. I should also mention that this illustration is mostly only beneficial to somebody who has made at least $207,500 in taxable income and paid themself wages. If you’re, and you’re also in the business where the income that you get does not directly result from you so in other words, you might sell products or… I mean, you’re not a consulting business or anything where basically, if you disappear, the business also disappears. This is a business owner who makes significant amount of money from non-consulting type business.

Since you’ve had a wonderful year, you decide, “Okay I’m going to declare a bonus of $10,000.” In this template which you can download below, you go to the water tab, enter $10,000 and go back to year and in tax plan, and we can see that our Qualified Business Income Deduction, QBI, is increased by $5,026, bringing down our tax by $1,853. You do want to, when you’re computing your QBI deductions, you do want to compute your income and you want to look at it in total and not just one portion because even though you might get a high QBI deduction, sometimes the high QBI deduction might cost you more in taxes somewhere else. This template does help you do that.

Some other things I should mention, it is important you pay yourself reasonable wages, which is not the topic of this discussion, but I just thought I will mention it. You do also have to make sure that you’re following the tax laws so which is why it’s recommended that you talk to a CPA, and also besides that, you can also see if there’s any other way you can decrease your taxable income by influencing any of the other hidden deductions I talked about in previous videos. This wraps it up for now. If you have any questions, feel free to leave a comment below and I’ll be glad to get back to you.

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Click here to download Excel file.

By |2018-12-06T17:45:16+00:00December 26th, 2018|2018 Tax Planning|Comments Off on End of Year Tax Planning: Overlooked Deductions (Part 4)

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