QBI

The IRS released final regulations on 199A. The Kiplinger Tax Letter said it best: “Final regulations provide limited guidance, but IRS gives a safe harbor.”

In this post we will discuss the safe harbor as it relates to “trade or business” with special emphasis on application with rental properties. The safe harbor doesn’t apply to all taxpayers and the trade or business designation is still possible without meeting the safe harbor parameters.

The final regulations run 248 pages. I will follow this post with a detailed post on 199A tiers with several decision trees. Due to the length and complexity of the regulations we are forced to remain focused on one aspect of 199A. Taxpayers with a sole proprietorship, partnership, S corporation or investment property may wish to seek the services of a competent tax professional until more clarification is reached through more regulations or from the Tax Court.

Links are provided at the end of this post to the entire 248 pages of regulations released and Notice 2019-07 (only 10 pages!) dealing with the trade or business safe harbor for real estate issues for your further research.

The reason for starting a side business are legion. Maybe early retirement left you with more free time than you know what to do with. Maybe you took early retirement a bit early with the intentions of earning some side income. Or, personal or family issues limit the hours available for gainful activities.

Micro businesses are a great way to earn more money without a massive expenditure of time. You can enjoy the best of both worlds: reasonable income and freedom.

But there is one factor that causes more headaches than any other: taxes. Micro businesses/side gigs have special tax rules that can cause serious problems, or, if done correctly, virtually eliminate your tax bill.

I’ve published on this in the past, but new tax rules require I provide an entirely new guide. Several notable changes require your attention. A misstep will cost you hard-earned tax dollars; a well thought out plan allows you to keep most or all of your side gig income.

The IRS is true to their word when they said they’d issue regulations on the Qualified Business Income Deduction, otherwise known as QBI, by the end of summer. In the past week proposed regulations were published, coming in at 184 pages. Remember these are “proposed” regulations. Final regulations come after guys like me pick it apart. Most of what you see probably survives so it is a good time to start the planning process.

Accountants who wanted to get a jump-start advising clients on ways to maximize the deduction are in for a rude surprise. Most schemes are out. At the end of this post I will outline what can be done to maximize the deduction.

The 184 pages of proposed regs cover more than just QBI. We will discuss the most relevant here. Consider consulting with a tax professional to review how your personal situation is affected by these proposed regulations.

If I find any other juicy tidbits, I’ll publish. If not, I’ll wait until the final regs are issued.