14 Feb Will I qualify for a lower tax rate?
Q. I have an LLC and I work as a freelance photographer. Will that income be eligible for the 20 percent tax rate?
A. You’re asking not about a 20 percent tax rate, but the Qualified Business Interest (QBI) deduction. This comes as part of the new tax law, and it gives a deduction of 20 percent for certain passthrough income earned from businesses operated as a sole proprietorship or through a partnership, S corporation, trust or estate.
The new code – Section 199a – is among the most confusing ever written, said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.
He said there are different factors depending on the type of business to determine eligibility.
“For most personal service businesses, the rules are different than for other types of businesses,” he said. “As a freelance photographer, technically, you are selling a product – the photograph, so you shouldn’t have an issue.”
Regardless, the first test is an income test and that depends on your filing status.
If you are married and filing a joint return, then the base is $315,000, Karu said. Otherwise, it’s half or $157,500.
“If your taxable Income is under that amount, you’re eligible for the 20 percent deduction,” Karu said.
Karu said if your taxable income exceeds that amount, there is a phase-out for the next $100,000 (for married filing jointly) or $50,000 (all other filing statuses). If it exceeds that amount, then there are other tests that must be met.
See your tax preparer to determine your eligibility and the extent of your deduction, and read more here on the IRS’ website.
Email your questions to moc.p1566333425leHye1566333425noMJN1566333425@ksA1566333425.