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3 million more businesses demanded this Trump tax break last year

According to IRS data, nearly 3 million more business owners claimed a 20% tax deduction on their income last year compared to the previous reporting season.

About 21.2 million returns claimed the deduction for “qualifying business income” during tax season last year, which reflected 2019 income. This is an increase from 18.4 million tax returns from the previous year.

The Tax Cuts and Jobs Act, signed by former President Donald Trump in 2017, created the so-called pass-through deduction.

The tax break allows owners of intermediate businesses, such as sole proprietorships, partnerships and S corporations, to deduct up to 20% of their business income from taxes.

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The income of these businesses goes into the individual tax returns of the business owner.

However, some complex rules apply to the 20% deduction. For example, service businesses like doctors, lawyers, and accountants may not be eligible if their taxable income exceeds a certain threshold.

This income limit was $ 213,300 for single tax filers in 2020 and $ 426,600 for married couples filing a joint tax return.

“Taxpayers are becoming more and more familiar with the rules,” said Steven Rosenthal, senior researcher at the Urban-Brookings Tax Policy Center, of the increase in tax returns claiming the tax break.

“The deduction is generous but sometimes requires structuring [on the part of the business owner]”, he added.” Taxpayers must prepare for it. “

While the number of tax returns claiming the 20% tax break has increased significantly, the total amount of the deduction has not increased significantly.

Business owners claimed nearly $ 150 billion in total deductions for the 2019 tax year, up from about $ 146 billion the year before, according to IRS data.

The IRS released data for tax returns up to December 31, 2020 and November 21, 2019, respectively.

“There is no obvious reason for the change, as there is sometimes due to, for example, a change in law or a change in reports,” an IRS official said of increase in returns claiming the 20% deduction.

Such a dynamic occurred after the 2017 tax law doubled the standard deduction, for example, the official said. The number of taxpayers who claimed the standard deduction, rather than itemizing their tax returns, increased sharply the following year, he said.

The transfer deduction will expire after 2025, unless extended by Congress.

The Tax Cuts and Jobs Act granted temporary tax breaks to individuals. He offered a permanent reduction in corporate tax rates, to a maximum rate of 21% instead of 35%.

Meanwhile, President Joe Biden unveils his $ 2 trillion infrastructure proposal on Wednesday. The initiative would be financed by an increase in the corporate tax rate to 28% and measures to end the relocation of profits.

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