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Warning for Sole Proprietors and Partnerships


To overcome getting shorted on the Section 199A deduction, also known as Qualified Business Income Deduction (QBI), or being denied fringe benefits, some sole proprietors and partners instruct their payroll services to make them W-2 employees.


When the payroll services do this, the proprietors and partners believe they are now legitimate employees of their proprietorships and partnerships. This is all Wrong!


Sole proprietors are not W-2 employees of the proprietorship, you are self-employed and operate under the rules for the self-employed.


The same applies to partners who are not W-2 employees of the partnership. Partners receive remuneration for services as guaranteed payments, which are subject to self-employment taxes.


It does not matter whether you WANT to treat yourself as employee for your own benefit. The calculation for QBI needs to be done following the rules for each entity type and you won’t be able to get a better result by paying yourself via payroll. 


A Tax Plan can show you the best strategies to reduce your taxes and maximize your deductions by analyzing your entity type, the projected income for the next years, your personal and business goals, and optimizing your QBI deduction. 


Need help with a Tax Plan? Contact us at admin@mybooksntaxes.com or by phone (510) 992-3499

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