New Section 199A Deductions Can Provide Extra Savings On Business Taxes

The Tax Cuts and Jobs Act of 2017, Rule 11011, Section 199A, has provided a 20% tax deduction for through-going businesses. Eligible taxpayers include sole proprietors, S corporations, partnerships, listed partnerships (PTPs) and real estate investment trusts (REITs). While calculating the deduction can be a difficult challenge at best, many taxpayers may end up adding their bottom line.

Section 199A, also referred to as the deduction for qualified business income, has two main components as follows:

  1. Eligible taxpayers may be entitled to deductions of up to 20 percent of Qualified Business Income (QBI) from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust or property. For taxpayers with a taxable income in excess of $ 315,000 for a married couple filing a joint return, or $ 157,500 for all other taxpayers, the deduction is subject to restrictions such as the type of trade or business, the taxpayer’s taxable income, the amount of W-2 wages paid by the qualified trade or business, and the wrongful basis immediately after the acquisition (UBIA) of qualified property owned by the industry or business. Income earned through a C corporation or by providing services as an employee is not eligible for deduction (www.irs.gov).

  2. Qualified taxpayers may also be entitled to a deduction of up to 20 percent of their combined Qualified Real Estate (REIT) and Qualified Listed Partnership (PTP) income. This component of the Section 199A deduction is not limited by W-2 salaries or UBIA for Qualified Property ( www.irs.gov ).

At this point, you may be wondering, how does an S-Corporation, Partnership, PTP or REIT qualify as a taxpayer when these business structures are considered “independent” entities? Well, the answer to that question is that all of the above business structures report each partner or shareholder’s share of Qualified Business Income (QBI), W-2 Salaries, Unadjusted Immediately after Acquired Qualification (UBIA), Qualified REIT dividend, and qualified PTP income on Schedule K-1. The deduction is then determined for current taxpayers.

A qualified business or business as defined by the IRS is any business or business except specified service business or business involving the provision of services in accounting, health, law, actuarial science, performing arts, consulting, athletics, financial services, investment, investment management, trade or any trade or business in which the most important asset is the reputation or skill (s) of one or more of its employees. The exception applies only that the taxpayer’s taxable income exceeds $ 315,000 for a married couple filing a joint return, or $ 157,000.00 for all others. This exemption also applies to taxpayers who perform services as an employee ( www.irs.gov ).