There was an interesting tax cut that passed through businesses as a result of the 2017 Tax Cuts and Jobs Act called Section 199(A) deduction or the Qualified Business Income Deduction.
Section 199(A) of the internal revenue code provides many taxpayers a deduction for qualified business income from a qualified trade or business operated directly or through a pass-through entity.
Eligible taxpayers may be entitled to a deduction 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 estate. For taxpayers with taxable income that exceeds $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers, the deduction is subject to limitations 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 unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business. Income earned through a C corporation or by providing services as an employee is not eligible for the deduction.
A qualified trade or business is any trade or business, with two exceptions: A. Specified service trade or business (SSTB), which includes 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. This exception only applies if a taxpayer’s taxable income exceeds $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers. Or B, Performing services as an employee.
The qualified business income deduction is computed by taking the lesser of a) 20 percent of the taxpayer’s QBI, plus 20 percent of the taxpayer’s qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income or b) 20 percent of the taxpayer’s taxable income minus net capital gains.