The new Tax Cuts and Jobs Act (TCJA) went into effect on December 22, 2017. With it came reduced rates and lots of changes to the tax code. One of the new rewrites includes Sec. 199A, which allows business owners a 20% deduction on qualified business income (QBI) starting with the 2018 tax year.

Here is a basic look at Sec. 199A.

How to Calculate Your Deduction

Businesses operated as a sole proprietorship or through a partnership are eligible for the QBI deduction. These include LLCs taxed as a partnership, S corporations (flow-through entities), trusts, or estates. The deduction basically applies to all businesses that aren’t corporations. Taxpayers with real estate investment trust (REIT) income or publicly traded partnership (PTP) income may also be entitled a deduction of 20% of the combined incomes. The QBI becomes the total income, gain, deduction and loss from any qualified trade or business, according to the IRS. Married taxpayers must declare less than $315,000 and single taxpayers less than $157,500 in taxable income to qualify for the deduction. 

If the taxpayer’s income exceeds the threshold, the deduction will be limited based on how much they pay their employees and the basis in certain business assets. Taxpayers in service-related businesses are also eligible. However, if their taxable income exceeds the thresholds above, the deduction phases out without regard to the additional wage and property thresholds. Service-related businesses include:

  • Healthcare Professionals
  • Law/Accounting
  • Actuarial Science
  • Performing Artists
  • Consulting
  • Athletics
  • Financial Services
  • Brokerage Services
  • Any trade or business whose principal asset is the reputation or skill of one or more of its employees

Eligible taxpayers may benefit from the deduction as they file their 2018 federal income tax return in 2019. There are many limitations and thresholds to this deduction, however. As a result, Sec. 199A is really anything but simple, which is where a qualified CPA comes in.

C&D | Qualified Business Income Deduction

If you are claiming business income on your taxes this year, a qualified CPA can help, since you may, or may not, be eligible for the 20% deduction. Our CPA professionals at C&D will know for sure. Schedule a consultation today to start on your 2018 taxes early. We have been studying the TCJA since it passed, and we can help you and your business get the most on your return.