28 Aug Can I deduct income from my side business?

Q. I have a side business but I’ve never made myself an LLC or any other business entity. If I want to benefit from the new 20 percent tax deduction, what should I do? And would that income taxed differently from my full-time job’s income?
— Worker

A. To benefit from the deduction you’re talking about – known as the Qualified Business Income deduction – you’re going to need to form some kind of company.

The 2017 tax law introduced Section 199A, which made many owners of domestically operating pass-through businesses, which include Limited Liability Companies (LLCs), sole proprietorships, partnerships and S corporations, eligible for the QBI, said Michael Pappachristou, a certified financial planner with RegentAtlantic in Morristown.

This deduction can be as high as 20 percent, he said.

If you file jointly with a spouse and your taxable income is below $315,000, or below $157,500 for filers of other statuses, then you may be eligible for the deduction. Those figures are for the 2018 tax year.

Pappachristou said if your income is above those thresholds, then the deduction is phased out for “specified service trades or businesses,” which include, but are not limited to: accounting, athletics, consulting, financial services, law and more.

“Meeting these requirements should allow you to deduct the lesser of 20 percent of your Qualified Business Income or 20 percent of your total taxable income,” he said. “The deduction applies even if you do not itemize other deductions.”

Note that even if you do not own and operate a “specified service trade or business,” a high level of income may prevent you from receiving the full deduction.

You may want to work with a certified public accountant to determine the appropriate structure for your business to see if you can qualify for the deduction.

Email your questions to .

This story was originally published on Aug. 28, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.