Crack and Pack
In this episode, John discusses recent IRS updates on “crack and pack.” The IRS has vowed to come after it!
Don’t miss John’s explanation of “crack & pack” and the TCJA deductions:
- The 20% tax break for pass-through businesses has a ceiling for qualified business income (QBI).
- Many small business owners have been looking for ways to get around this QBI limit. One way might be to break up their business into smaller entities:
- Small businesses in service industries like healthcare, financial planning, insurance, etc., try to separate the admin part of their business from the service part.
- This is for small business owners who are married filing jointly. If income is above $315k, they lose the 20% deduction for their pass-through service business.
- The impact of the tax break is pretty big. If a business owner is making a salary of $200,000 and they’ve got $600,000 of qualified business income, 20% of that QBI number could be deductible. With $120,000 deductible, they pay tax on $480k rather than $600k (plus the salary).
This explains why people have been contemplating pulling their businesses apart! So what to do?
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