The ability to interpret and apply tax regulation effectively can significantly shape a business’s financial health. For instance, consider our client Mr. Streit, a savvy business owner who heads an S Corporation named ‘Streit R Us.’
Known for its partnerships with many businesses, Streit R Us faced a crucial question: Could the pass-through income derived from these partnerships be eligible for the Section 199A deduction?
To provide context, let’s briefly outline two key tax elements:
Section 199A deduction is a tax relief allowing individuals, trusts, and estates to deduct up to 20% of their Qualified Business Income (QBI) from a business operated as a sole proprietorship, partnership, S corporation, trust, or estate.
Self-Employment Taxes incorporate Social Security and Medicare taxes. As of 2021, the rate stood at 15.3%, with Social Security accounting for 12.4% and Medicare for 2.9%.
Shining a light on Mr. Streit’s situation revealed that guaranteed payments, constituting part of Streit R Us’ income, were not QBI and, thus, ineligible for the Section 199A deduction. However, their strategic use of the S corporation model resulted in savings on self-employment taxes.
Moreover, this strategy could be further optimized by decreasing guaranteed payments and exploring special allocations of partnership tax items.
Like Mr. Streit and Streit R Us, let’s tailor a tax-saving strategy that suits your unique business.
Your journey to a stronger fiscal position begins by booking your consultation here.