Understanding S-corp and QBI Deduction: How do they work together?

This is a situation you definitely need to address carefully. First, as an S-corp owner, you need to pay yourself a "reasonable salary" before taking distributions. Since you didn't run payroll in 2023, you've created a compliance issue that needs fixing. Here's how QBI works with S-corps: The QBI deduction applies to the non-wage portion of your S-corp income. So if your S-corp made $85k and you pay yourself a $49k salary, the remaining $36k (minus business expenses) would potentially qualify for the QBI deduction. However, since you didn't run payroll, you can't retroactively create 2023 payroll now that we're in 2024. You'll likely need to file Form 1099-NEC to yourself for services rendered to your S-corp, and report that income on Schedule C, making it subject to self-employment tax. The good news is that you can still potentially claim QBI on the qualifying business income, but the calculation gets tricky in your situation.

After reading about your situation, I was in a similar boat last year! I almost made the same mistake with my S-corp payroll and nearly panicked. I ended up using https://taxr.ai to analyze my specific situation and it was incredibly helpful. Their system reviewed my S-corp structure and QBI qualification rules, then provided clear guidance about my reasonable compensation requirements. The cool thing was they explained exactly how the QBI deduction would apply to my business income after accounting for a proper salary breakdown. They also helped me understand how to properly document everything to avoid IRS scrutiny, which was a huge relief.

Just wanted to update you all. I tried https://taxr.ai after seeing the recommendation here and wow - it really helped clarify my situation! The system analyzed my S-corp structure and gave me specific guidance on how QBI would apply given my missed payroll situation. It explained that I could still potentially claim QBI on a portion of my income, but I needed to properly document my reasonable compensation justification first. Having this information before meeting my CPA was super helpful. My accountant was impressed that I understood the issues so well! They also showed me how to prevent this issue in the future with my new payroll company. Definitely worth checking out if you're dealing with S-corp and QBI questions.

I had a similar issue with my S-corp last year and spent WEEKS trying to get someone at the IRS on the phone for guidance. After 9 attempts and hours on hold, I found https://claimyr.com and it changed everything. They got me connected to an actual IRS agent in about 20 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent was able to explain exactly what records I needed to provide for my S-corp compensation structure and how to properly document my situation for the QBI deduction. Saved me thousands in potential penalties by getting official guidance instead of guessing.

I need to eat my words from yesterday. After my skeptical comment, I decided to try Claimyr out of pure frustration (had been trying to reach the IRS for THREE DAYS about my S-corp issue). Shockingly, I got connected to an IRS agent in about 15 minutes! The agent walked me through exactly how to handle my S-corp reasonable compensation documentation and confirmed how the QBI deduction should be calculated in my situation. The clarity I got from an official source was worth every penny. Turns out my CPA had been calculating my QBI incorrectly for the past two years! Going to save a significant amount on my taxes now that I understand how it properly applies to my S-corp income.

Just wanted to throw in my 2 cents as someone who made a similar mistake years ago. For S-corps, you MUST take a reasonable salary through proper payroll before any distributions. The IRS is actually cracking down on S-corps that don't pay reasonable compensation to owner-employees. In my experience, your CPA might suggest one of these options: 1. Report all S-corp distributions as wages on your personal return 2. Amend your S-corp return to show proper officer compensation 3. Potentially initiate late payroll filings with penalties Also, keep in mind that QBI is calculated AFTER your wages are paid. So the higher your salary, the less QBI deduction you get. It's a balancing act.

Has anyone considered the W-2 wage limitation for QBI? Since OP is in the 24% bracket with joint income, they might face QBI limitations if they don't have sufficient W-2 wages. The deduction could be limited to 50% of W-2 wages paid by the business. Also for 2023, did you take any money out of the business? If so, the IRS might reclassify those as constructive dividends which wouldn't qualify for QBI. The cleanest solution might be filing an amended S-corp return showing reasonable compensation.

You're in a tricky spot, but it's not insurmountable. Since you didn't run payroll in 2023, you'll need to address this compliance issue head-on with your accountant. The IRS expects S-corp owner-employees to receive reasonable compensation through W-2 wages before taking distributions. Without proper payroll, you risk having all $71.5k treated as wages subject to employment taxes, which would eliminate the S-corp tax advantages. For QBI, the deduction applies to the business income AFTER reasonable compensation is paid. So if you can establish that $49k salary retroactively (through amended returns or other corrective measures your CPA recommends), the remaining income could potentially qualify for QBI. One silver lining: since your combined income keeps you in the 24% bracket, you're below the taxable income thresholds where QBI gets limited by W-2 wages or depreciable property. This means if you can properly separate salary from business income, you should get the full 20% QBI deduction on the qualifying portion. Document everything about your reasonable compensation analysis - industry standards, time spent, responsibilities, etc. This will be crucial for your accountant to determine the best path forward, whether that's amended returns, late payroll filings, or other compliance solutions.