Exploring key tax provisions like Qualified Business Income (QBI) deduction and Qualified Small Business Stock (QSBS), and their implications for starting and selling a business, as influenced by the "One Big Beautiful Bill" (OBB).

Synopsis:
In this episode of Wealthyist, Dr. Brian Jacobsen and Brian Lamborne dive into the complexities of business tax strategies, likening them to an "alphabet soup" of acronyms like QBI and QSBS. They discuss how these provisions impact business formation, tax planning, and eventual business sales, particularly in light of the OBB's changes. The conversation highlights the importance of strategic entity selection (e.g., C corporation, S corporation, or LLC) and how it affects eligibility for tax benefits like the QBI deduction. They also touch on common pitfalls, such as business owners making uninformed decisions based on incomplete advice from non-experts or social media. The episode emphasizes the need for tailored professional guidance to optimize tax outcomes and asset protection.

Key Takeaways: 

1. QBI Deduction Overview: 
   • QBI (Qualified Business Income) allows a deduction of up to 20% on pass-through entity income (e.g., S corporations, LLCs, sole proprietorships) reported on personal tax returns. 
   • C corporations, taxed as separate entities, are ineligible for QBI unless they elect S corporation tax status via IRS filing. 
   • LLCs default to sole proprietorship (Schedule C) for single-member LLCs, automatically qualifying for QBI, but can elect S or C corporation tax status for strategic reasons. 
   • The OBB expanded QBI phase-in thresholds from $100,000–$500,000 to $150,000–$550,000, offering more room for high earners (e.g., doctors, lawyers) to benefit, though professionals face stricter rules above the threshold. 
   • Strategic planning, like using retirement plans (e.g., cash balance plans), can lower adjusted gross income to maximize QBI eligibility.
2. QSBS and Entity Choice: 
   • Qualified Small Business Stock (QSBS) applies only to C corporations, offering significant tax exclusions on gains from selling stock, making it attractive for businesses (e.g., tech startups) aiming for a future sale. 
   • Choosing an LLC or S corporation precludes QSBS benefits, as these entities don’t issue stock. Investors must align entity choice with their goals (e.g., income stream vs. future sale).
3. Accidental Entrepreneurs and Poor Advice: 
   • Many business owners become "accidental entrepreneurs," starting businesses without proper planning, often choosing entities (LLC or corporation) based on casual advice from friends, accountants, or social media (e.g., TikTok, YouTube). 
   • Entity choice impacts asset protection and tax outcomes. Corporations are designed for asset protection, with tax rules layered on, while LLCs offer flexibility in tax elections.
4. OBB’s Impact: 
   • The OBB extended QBI phase-in ranges, benefiting high-income professionals by providing more flexibility to claim the deduction. 
   • The episode hints at further discussion on QSBS in a future part, suggesting OBB may also influence QSBS-related strategies.
5. Decision-Making Framework: 
   • Business owners and investors should clarify goals (e.g., income stream vs. exit strategy) before choosing an entity. 
   • Consulting professionals (not social media or peers) ensures informed decisions about entity structure, tax elections, and deductions like QBI or QSBS.

Actionable Advice: 

• Work with a wealth strategist or tax professional to align business entity choices with long-term financial goals. 
• Evaluate QBI eligibility and consider tax planning strategies (e.g., retirement contributions) to stay within favorable income thresholds. 
• For businesses eyeing a future sale, explore C corporation status for QSBS benefits, but weigh against loss of QBI.

Next Episode Tease: Part two will compare QBI and QSBS in depth, offering a decision tree for business owners and investors. 

Note: For detailed tax planning, listeners should consult professionals, as individual circumstances vary.