The Tax Cuts and Jobs Act (P.L. 115-97), enacted December 22, 2017, created, under Section 199A, a new deduction for up to 20% of qualified business income (QBI) from partnerships, limited liability companies (LLCs), S corporations, trusts, estates, and sole proprietorships for tax years beginning after December 31, 2017. However, determining the Section 199A deduction amount and availability is a complex multi-step process that may phase out some or all of the deduction. In the face of this complexity, the text provides a selected overview of the essential components of this below-the-line deduction. Qualified business income, taxpayer’s taxable income, wage/capital limit, specified services trade or businesses, and other vital components are defined and calculated. Their interaction is demonstrated and exampled.
Deduction amount. Wage/capital limit. Qualified business income. Qualified trade or business. Specify service trade or business. De Minimis Regulatory Rule. Domestic business
CPAs and other tax professionals.
Recognize Section 199A’s limited effective time period, its complex calculation process and the general exclusions, limits, and restrictions applicable to the provision. Determine the Section 199A deduction amount, the type of W-2 wages used in calculating the wage/capital limit and specify how the limit impacts the amount and availability of the deduction. Identify qualified business income and loss, its basic components and the ability of a taxpayer to aggregate businesses in its determination. Recognize the specified services trade or business exclusion, the listed excluded services and the important exceptions provided by the regulatory de minimis rule. Identify a domestic trade or business.
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