Business expenses vs. qualified business expense

Forum|Forum|6 years ago
April 11, 2020
5 replies
41 views

For a small business, how can we calculate which scenario leads to paying the least amount of federal income tax:

A) taking all of our business expenses as deductions;

B) having a higher qualified business deduction?

HELP! (thanks)

TurboTax Home & Biz Windows

KrisD15

Level 15

You report your business expenses.

The program computes the Qualified Business Deduction.

You don't choose between the two, they are not options, they are separate deductions.

After you enter your expenses/business deductions the program figures the 20% that is the Qualified Business Deduction (QBI).

You are not allowed to NOT report expenses in order to boost the QBI.

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Carl

Level 11

Huh? Believe it or not, the IRS says you are "required" to deduct all of your business expenses. The only difference I see between your A and B, is the wording. You can't have A without B, and vice versa.

Rick19744

Level 13

@Carl11_2 the difference between the two and the ultimate question was whether they can forgo deductions, which would in turn increase income and potentially provide a larger QBI deduction.

As was already noted, deductions are to be taken in the year incurred based on your method of accounting.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.

SparkysDad8842Author

Level 2

Thank you. I did not know that the IRS requires a business to deduct all of its expenses. Seems counter intuitive, as some may operate their business in such a way as to keep expenses to a minimum, while others might believe (rightly or wrongly) that if they incur greater expenses that may lead to a more profitable business. Sounds like it may penalize businesses that operate on a shoestring.

Just to clarify, the business in question is a start up individually owned LLC, which will file a schedule C to a 1040 for a married couple filing jointly. Does this change anything? Thanks again for your help.