Qualified Business Income Deduction
to tax reform legislation passed in December 2017, eligible
taxpayers may now deduct up to 20 percent of certain
business income from qualified domestic businesses, as
well as certain dividends.
Eligible taxpayers can claim the deduction for the first time
on the 2018 federal income tax return they file in 2019.
Note: Although the final
regulations have not yet been published in the Federal Register, taxpayers
who wish to become familiar with the rules may review the proposed
regulations issued by visiting the IRS website or calling the office.
The Qualified Business Income Deduction (QBID) often referred to as
the 20 percent deduction for pass-through entities, is also known as the
Section 199A deduction as it is named after Section 199A of the Internal
Here are six key facts about the qualified business income deduction:
The deduction applies to qualified business income from a qualified
business (i.e. pass-through entities) such as:
> a sole proprietorship
> LLC treated as a sole proprietorship or partnership for tax purposes
> Non-corporate taxpayers such as trusts and estates
> Publicly traded partnerships
Qualified business income is the net amount of qualified items of
income, gain, deduction, and loss connected to a qualified U.S. trade or
business. Only items included in taxable income are counted.
Qualified business income does not include income from performing services
as an employee. Capital gains and losses, shareholders wages, certain
dividends, and interest income are excluded as well.
The deduction is available to eligible taxpayers, whether they
itemize their deductions on Schedule A or take the standard deduction.
The deduction can be taken in addition to the standard or itemized
deductions and is subject to limitations based on the type of trade or
business, the taxpayer's taxable income, the amount of W-2 wages paid with
respect to the qualified trade or business, and the unadjusted basis of
qualified property held by the trade or business.
The deduction is generally equal to the lesser of these two amounts:
> Twenty percent of qualified business income plus 20 percent of qualified
real estate investment trust dividends and qualified publicly traded
> Twenty percent of taxable income computed before the qualified business
income deduction minus net capital gains.
For taxpayers with taxable income computed before the qualified
business income deduction that exceeds $315,000 for a married couple filing
a joint return, or $157,500 for all other taxpayers, the deduction may be
subject to additional limitations or exceptions.
These are based on the type of trade or business (see below), the
taxpayer's taxable income, the amount of W-2 wages paid by the qualified
trade or business, and the unadjusted basis immediately after acquisition of
qualified property held by the trade or business.
Income earned through a C corporation is not eligible for the
Qualified Trade or Business. A qualified trade or business is any
trade or business except one 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. This exclusion only applies, however, if a taxpayer's taxable
income exceeds $315,000 for a married couple filing a joint return, or
$157,500 for all other taxpayers.
While relatively straightforward for most businesses, those with more
complicated tax structures or multiple businesses or trades, consulting a
tax professional is advised. As always, don't hesitate to call if you have
QUESTIONS About Levies
If you have any questions about
Section 199A or other business deductions, don't hesitate to
contact the office and speak to a tax professional you can
trust. Call the office at
SMEED CPA Adds Financial
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often we here at SMEED CPA are asked about financial issues
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