Sec. 199A deduction

Tax wise, now is a great time to operate a small business. With the enactment of legislation known as the Tax Cuts and Jobs Act (the Act) on Dec. 22, 2017, a new provision of the Internal Revenue Code was born: Sec. 199A, which permits owners of sole proprietorships, S corporations, or partnerships to deduct up to 20% of the income earned by the business.

Effective for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026, a taxpayer other than a C corporation is entitled to a deduction equal to 20% of the taxpayer's "qualified business income" earned in a "qualified trade or business." The deduction is limited, however, to the greater of:

50% of the W-2 wages with respect to the qualified trade or business; or
The sum of 25% of the W-2 wages with respect to the qualified trade or business, plus 2.5% of the unadjusted basis immediately after acquisition of all qualified property.
The W-2 wage limitation does not apply to taxpayers with taxable income of less than $157,500 for the year ($315,000 for married filing jointly) and is phased in for taxpayers with taxable income above those thresholds. Income from specified service businesses is not excluded from qualified business income for taxpayers with taxable income under the same threshold amounts.

The actual calculations for this deduction are quite extensive and complicated and there are numerous exclusions included in the provision like the Specified Service Business exclusion that must be contemplated. Each situation is different and needs to be separately evaluated.

If you are considering starting a new business or have an existing business and would just like more information about this new tax provision, please don’t hesitate to contact us.

Anthony P. DAgostino | 08/27/2019

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Sec. 199A deduction

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