20% Qualified Business Income DeductionTax Cuts and Jobs Act, Section 199A
Qualified Business Income Deduction, Section 199A can save you 20%
The IRS has announced “the new qualified business income (QBI) deduction, also known as the section 199A deduction, that may be available to individuals, including many owners of sole proprietorships, partnerships and S corporations. Some trusts and estates may also be able to take the deduction. This deduction, created by the 2017 Tax Cuts and Jobs Act, allows non-corporate taxpayers to deduct up to 20 percent of their QBI, plus 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.”
Most rental property activities also qualify.
If you’re thinking “this sounds good, but it’s giving me a head ache before I even know what it is”, not to worry. The bottom line is most Small Business owners now qualify for a 20% deduction on taxable income from their pass-through entities(Schedule C businesses, Partnerships, and S corporations).
That’s right small business people, Trump signed a bill to reduce your taxes, “BIGLY”. By some miracle, it actually passed, and the IRS had to include it in the tax code. Sometimes deep state political activists in our government don’t get the last laugh.
And, look at that hair!
So don’t let the IRS tears on your refund check keep you from cashing it.
The new tax law may require some special preparation of your K-1 and a basis calculation. But don’t worry, no one who qualifies will leave our office without it!
Some limitations for high earners in certain types of businesses, depending on reasonable W2 compensation and other factors. We’ll take care of the details for you but here’s the gist of it below:
The deduction is limited to the greater of (1) 50% of the W-2 wages with respect to the trade or business, or (2) the sum of 25% of the W-2 wages, plus 2.5% of the unadjusted basis immediately after acquisition of all qualified property (generally, tangible property subject to depreciation under Sec. 167). The deduction also may not exceed (1) taxable income for the year over (2) net capital gain plus aggregate qualified cooperative dividends.
The W-2 wage limitation does not apply to taxpayers with taxable income of less than $157,500 for the year ($315,000 for married filing jointly) and is phased in for taxpayers with taxable income above those thresholds. Income from specified service businesses is not excluded from qualified business income for taxpayers with taxable income under the same threshold amounts.
For taxpayers with taxable income that exceeds the threshold amount, specified service trades or businesses (SSTBs). An SSTB is a trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, dealing in certain assets or any trade or business where the principal asset is the reputation or skill of one or more of its employees or owners. The principal asset of a trade or business is the reputation or skill of its employees or owners if the trade or business consists of the receipt of income from endorsing products or services, the use of an individual’s image, likeness, voice, or other symbols associated with the individual’s identity, or appearances at events or on radio, television, or other media formats. The SSTB exception does not apply for taxpayers with taxable income below the threshold amount and is phased in for taxpayers with taxable income above the threshold amount. For 2018, the threshold amount is $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers. The threshold amounts will be adjusted for inflation in subsequent years.
So Who Benefits from Qualified Business Income Deduction?
- Sole Proprietorships
- S Corporations
- Trusts and Estates
What is the Benefit of QBID?
- In most cases, a 20% deduction of Qualified Business Income from your taxable income
Give us a call to see if you qualify
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