The recent federal tax overhaul unveiled a new 20% tax deduction for small-business owners in 2018—and so far, CNBC reports, just over 1 in 10 filers have claimed it.
The qualified business income deduction is one of the features of the Tax Cuts and Jobs Act, which went into effect last year. This new tax break allows owners of pass-through entities, including S-corporations, partnerships and sole proprietorships, to deduct up to 20% of their qualified business income.
Filers eagerly grabbed the deduction for the 2018 tax year. More than 14 million income tax returns claimed this break as of May 23, according to data from the IRS. Up to that date, the IRS had received more than 134 million returns. In all, filers claimed roughly $74 billion in so-called QBI deductions taken as of that date, the IRS found.
Entrepreneurs with 2018 taxable income below $157,500 if single or $315,000 if married and filing jointly qualified for the deduction, but many tax filing software companies and accountants weren’t quite ready for the process this year.
“With it being the first year, I think everyone is still trying to figure it out,” said Tim Steffen, CPA and director of advanced planning at Robert W. Baird & Co. in Milwaukee.