Qualified Income Deduction for Passthrough Business
We have seen a lot of press recently about the IRS proposal on 8/18/18 for a new provision that allows passthrough businesses (sole proprietorships, partnerships, trusts, and S corporations) to deduct 20% of their qualified income. This new deduction currently called the 199A deduction or the deduction for qualified business income was created by the Tax Cuts and Jobs Act. Taxpayers will be able to claim this deduction for the first time on their 2018 tax return. It will be available to taxpayers with income below $315,000 if filing joint and $157,000 if filing individual.
Here’s The Catch
The deduction is “equal to the lesser of 20% of your qualified business income plus 20% of your qualified real estate investment trust dividends and qualified publicly traded partnership income OR 20% of taxable income minus net capital gains”. Deduction for taxpayers above the incomes of $157,000 or $315,000 may be limited but are not fully described in the proposed regulations.
Qualified Business Income
Qualified business income includes domestic income from a trade or business. Employee wages, capital gain, interest and dividend income are excluded.
The IRS has also issued Notice 2018-64 providing methods for calculating Form W-2 wages for the limitations on this deduction.
The final regulations are yet to be published and until they are we will be interpreting the rules with the information that we have.
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