Are Board Of Directors Fees Qualified Business Income?
The Tax Cuts and Jobs Act of 2017 (TCJA) created a new qualified business income (QBI) deduction. The deduction, which is also sometimes called the "pass-through deduction," is available to owners of sole proprietorships, partnerships, S corporations, and certain trusts and estates. It's also available to shareholders in S corporations and partners in partnerships.
The QBI deduction allows you to deduct up to 20% of your qualified business income from your taxable income. But what exactly is qualified business income?
According to the IRS, qualified business income is "the net amount of qualified items of income, gain, deduction and loss from any qualified trade or business." But what are qualified items of income, gain, deduction, and loss?
The answer isn't entirely clear. The IRS has issued guidance on the QBI deduction, but it doesn't specifically list board of directors fees as qualifying income. However, it's possible that board of directors fees could be considered qualified business income.
To qualify for the QBI deduction, your business must meet certain requirements. First, it must be a trade or business under section 162 of the tax code. This includes businesses such as sole proprietorships, partnerships, S corporations, and trusts and estates.
Second, the trade or business must be engaged in a "qualified activity." This generally includes any activity that is conducted for the production of goods or services. So, if your board of directors fees are related to the production of goods or services, they may be considered qualified business income.
The third requirement is that your trade or business must have "qualified property." Qualified property generally includes tangible property used in a trade or business, such as buildings, machinery, or equipment. It also includes intangible property used in a trade or business, such as patents, copyrights, and trademarks.
So, if your board of directors fees are related to the use of tangible or intangible property used in a trade or business, they may be considered qualified business income.
The fourth and final requirement is that your trade or business must have "qualified employees." Qualified employees generally include any full-time employee who works for the trade or business for more than half of the year. So, if your board of directors fees are related to the employment of full-time employees who work for the trade or business for more than half of the year, they may be considered qualified business income.
The answer to this question may depend on the particular situation and facts involved. In some cases, the fees may be considered qualified business income, while in others they may not. Ultimately, it is important to speak with a qualified tax professional to determine whether or not board of directors fees are qualified business income in your specific case.
Of course, this is just general guidance from the IRS. Board of directors fees may or may not be considered qualified business income depending on the specific facts and circumstances of your case. If you're not sure whether your board of directors fees are qualified business income, you should speak with a tax advisor.
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