Have you spoken with your CPA about the pass-through tax deduction? If not, then you might be missing out on the opportunity to write off a significant portion of your business income. In this episode, Gene Marks and special guest, Hal Rosen of Haynie & Company, discuss how small business owners who run sole proprietorships or S-corps can benefit from this substantial tax break.

Podcast Key Highlights

• The Advantages of Hiring a Licensed CPA to Prepare Your
  Taxes
  • CPAs are more familiar with business-related tax laws and
    policies.
  • A CPA will make sure you don’t miss any potential deductions
    or overpay your income taxes.
• The Small Business Pass-Through Tax Deduction
  • Pass-through businesses, such as sole proprietorships,
    partnerships, and S-corporations, are eligible for a deduction of up to 20% on
    their business income, or QBI (Qualified Business Income).
  • If your QBI exceeds a certain threshold, you may not be
    eligible for the full 20% deduction.
  • Business owners who didn’t take advantage of this deduction
    on their previous tax returns can amend up to three years back.

Links

• Haynie & Company

Transcript

The views and opinions expressed on this podcast are for informational purposes only, and solely those of the podcast participants, contributors, and guests, and do not constitute an endorsement by or necessarily represent the views of The Hartford or its affiliates.

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Gene: Hey everybody and welcome. This is Gene Marks here on the Small Biz Ahead podcast. I’m bummed Jon Aidukonis is not here with me today. I can’t believe he’s missing out on this conversation about tax deductions. My gosh, what a coincidence that for some reason he was unavailable. No, I’m just kidding. He actually had a prior appointment, could not make this conversation, but that’s okay. Because listen, I’m the accountant here and I’ve got a colleague and a partner in crime here that is also an accountant and a CPA, Hal Rosen, who is joining us today. First of all, Hal, let me first of all, thank you for taking the time out of your day and joining me for this conversation.

Hal: Well, it’s good to be here. I always like to help small business people. It’s at the heart of my practice, is what small business people do. So I’m glad to help.

Gene: I am glad to hear that. Now, Hal, you’re a partner at Haynie & Company, we will give the website as part of the show notes. But I believe it’s hayniecpas.com, H-A-Y-N-I-E-C-P-As.com. Is that correct?

Hal: Right. And CPAs, because there’s a former part of the company that spin off, that’s hayniecpa.com. So that sometimes is confusing. So we have the s on the end of CPA.

Gene: And you are a CPA as well, correct?

Hal: That’s correct.

Gene: That’s right. For how many years now?

Hal: It’s been 43 years since I got my license.

Gene: Oh my goodness. That’s a long time. Wow. I mean, did you take the CPA exam on a stone with a chisel, to put in your answers or?

Hal: It was all manual. We didn’t have computers when I took that.

Gene: Yeah. Yeah. Actually mine was as well. I got my CPA in the ’80s and I don’t even practice accounting per se, I don’t do tax returns. I was never a good CPA, Hal, for me, if it’s close enough, it’s good enough. And that’s probably not the way you want to be if you’re a good CPA. But I’ve kept my certificate over the years. I worked so hard for it and I’m proud of it. And I do use it for writing and all that. It’s a great profession. And so you’ve been doing this for, God, four decades is amazing. You’re based in Salt Lake, is that right? Salt Lake City.

Hal: That’s right. Salt Lake City.

Gene: That’s great. And tell me about your practice. Are you a tax guy or you’re a general financial guy? Do you deal mostly with small businesses?

Hal: I deal mostly with small businesses. I’m part of the tax department. I’m phasing out of taxes right now. In the last about a year and a half, we’ve been implementing an automated bookkeeping system in using technology to get out of manual entry and let computers and the machines do more of what they can. I’ve used QuickBook since DOS version one, I actually have my original diskettes framed on a bookshelf here. So I got on the QuickBooks bandwagon right from the beginning. And lots of other CPAs at the time were saying, that’s a joke of a program, it’s not right, it doesn’t do things the correct way. In other words, journal entering all the changes and fixing everything that way. But I looked at it and said, well, it’s right for my clients.

Gene: Yes.

Hal: Because it’s inexpensive, I can fix their mistakes in a hurry. It’s user friendly. Now the DOS version was very plain, but it was lightning fast. And so it was just great for my clients. And so I’ve just built up a practice over the decades of using QuickBooks and helping clients with QuickBooks.

Gene: I have to ask you, being that you’re in that technology word, and we are going to get into the topic of the day, which is the qualified business income tax deduction of small business, pass-through deduction. But before we get into that topic, you mentioned QuickBooks, part of into it is TurboTax. And there’s a lot of competitors for tax preparation software that both individuals and small businesses use. Just very quickly, what are your thoughts about tax preparation software? Can it replace a CPA for a small business? Do you ever advise a small business owner to just get TurboTax or H&R Block, or do you not advise doing that? What are your thoughts on tax prep software for the small business owner?

Hal: I have never advised either one of those. Yeah. It used to be, I would see lots of clients that had figured their taxes on TurboTax and they get frustrated because they weren’t simple and they’d come in to see me and I developed a philosophy that the IRS loves TurboTax.

Gene: Why is that?

Hal: It’s because I found people on average overpaid their taxes by $3,500 by using TurboTax.

Gene: Oh my goodness. Wow. Okay. That’s a warning.

Hal: TurboTax tries to help people, but when you get into businesses and such, and this is why the people came to see me in the first place is, they just didn’t know all what was going on. And they ended up double counting income, they ended up leaving off expenses that should have been deductible. And if you got W-2 income and maybe some interest and you’re trying to use TurboTax, it’s probably just great, except, there’s one thing I don’t like about it. If you print out the return, the return’s like 125 pages. If we printed out that same return, it’s probably 20. They think they’ve got to print all these schedules and schedules that could fit on five pages, they expand it to 25 or 50 or whatever.

So for the right people, they can help. But if you’re in business, you really need somebody like us that can help you, that knows what’s going on. And that’s what we see, and that’s how we help people. That other company you mentioned, I would never recommend them because they bought out my tax software company that I’d used for decades. And in four years, destroyed a wonderful company.

Gene: Oh gosh. Well, I’ve just gotten emails from both of those companies, and they’ve now pulled out of those sponsorships for this podcast. So thanks a lot, Hal, I appreciate. No, I’m just kidding. They’re not sponsors.

Hal: One of them, I didn’t give by names.

Gene: That’s fine. It’s good advice that you can give to your clients, and I’m in full agreement with you. I do think, for some people, even some small businesses, they can get away with using a tax prep software, but it’s like anything else. I think you need to have a human set of eyes that really knows the business owner well and knows all the facts to really provide the best type of tax advice. Now, one of the biggest areas of taxes in the past, at least since 2017, has been this qualified business income deduction. What’s it called? The small business pass-through deduction.

And what I wanted to do, Hal, is I wanted to sort of give you the floor. You can insult my intelligence, what little of it that there is, and assumes I know nothing about this deduction. But it’s a huge one for small business owners that run pass-throughs, because so many of us have S-Corps and partnerships. So tell us about this deduction and I’m going to ask you to also advise us on what we should be asking our accountants about this deduction. Is to make sure that we’re taking full advantage of it? So the floor is yours.

Hal: Okay. So let me just add, besides pass-through entities like partnerships and S-Corps, it also works for sole proprietorships. In other words, a Schedule C on the 1040, does not work for C-Corps. It’s only for those entities that pass-through to the owner, saying a Schedule C is a pass-through entity as well, it’s just a single person owner. It is a godsend to small businesses. It is huge. Essentially it gives a deduction up to 20% of the income of the business and it’s called qualified business income, or we call it QBI deduction. So when you compute your income, whether you’re a Schedule C or partnership or S-Corp, normally, most busin