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Did You Know: Taxpayers are allowed a qualified business income deduction?

February 7, 2018 | Mitch Estling

Did you know:

Taxpayers are allowed a deduction equal to 20% of “qualified business income” from partnerships, S-corporations and sole proprietorships.

Now that you know – here’s what it means!

If your individual taxable income is typically $315,000 or more ($157,500 for single filers), then this deduction will be phased out for specified service trades such as health, law, consulting, athletics, financial or brokerage services.

And here are the details:

One of the more complex provisions of the Tax Cuts and Jobs Act (TCJA) is the Section 199A deduction which provides individuals a 20% deduction of “qualified business income” (QBI) from a partnership, S corporation, LLC or sole proprietorship. The deduction is an attempt to narrow the federal tax rate difference between corporations (21%) and pass through entities (37%). The 37% is the top individual tax rate under the TCJA.

QBI is defined as the amount of items of income, gain, deduction and loss with respect to each trade or business. Specified investment-related items are not included, such as capital gains or losses, dividends and interest income (unless the interest is properly allocable to the business). Also, QBI does not include reasonable compensation received from an S corporation, or a guaranteed payment received from a partnership for services provided to a partnership’s business. The deduction will be calculated separately for each trade or business and then the taxpayer will combine the deductions from each trade or business. If net QBI is less than zero it is treated as a loss from a qualified business in the following year.

Need help understanding how the QBI deduction will impact you or your business? Start Here.

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