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Sec 199A Qualified Business Income Deduction

Taxpayers who have income from business and pass-through entities, other than Corporations, are entitled to a deduction of up to 20% of their Qualified Business Income (QBI) from a Qualified Trade or Business. This deduction is in addition to the Standard or Itemized deductions and reduces the Taxable Income and not the AGI.

 The deduction has 2 components:

  1. The sum of 20% of the Qualified Business Income (QBI) from all Qualified Trade or Business.
  2. Taxpayers may also be entitled to a deduction of up to 20 % of their combined qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. This component of the QBI deduction is not limited by W2 wages or the UBIA of qualified property.

 

The sum of these 2 amounts is referred to as the combined qualified business income amount.

 

Qualified Trade or Business: 

Any trade or business which is not a Specified Service Trade or Business (SSTB) and does not include performing services as an employee.

SSTB: includes healthcare professionals, law, accounting, actuarial science, performing artists, consulting, athletics, financial services, brokerage services, investing and investment management, trading, or dealing in securities, partnership interests, or commodities, and any trade or business where the principal asset is the reputation or skill of one or more of its employees.

Architecture and Engineering are not SSTB

 Qualified Business Income:(QBI)

 QBI is defined as the net amount of “items of income, gain, deduction and loss” relating to any qualified trade or business

The items must be effectively connected with a U.S. trade or business.

QBI does not include:

-Certain investment items such long-term and short-term capital gains or losses, dividend and interest income.

-reasonable compensation paid to the taxpayer as an employee by any qualified trade or business.

-any guaranteed payment to a partner for services to the business. 

 

QBI Deduction:

(A)The deduction for any taxable year is equal to the lesser of:

a.     The combined qualified business income which is:

-the sum of the amounts determined for each qualified trade or business plus 20% of the aggregate amount of the qualified REIT dividends and qualified PTP income

 (or)

b.    20% of (the taxable income minus the net capital gain)

Taxpayers with Taxable income that exceeds

$315,000 for MFJ or

$157,500 for all other taxpayers

(B)The deduction cannot exceed the greater of:

·       50% of the W-2 wages paid by the business

Or

·       The sum of 25% of the W-2 wages paid by the business plus 2.5% of the Cost basis of the qualified property

Qualified Property is defined as tangible depreciable property used in the business and the depreciable period for which has not ended before the close of the tax year.