{"id":1106,"date":"2019-01-28T16:43:08","date_gmt":"2019-01-28T16:43:08","guid":{"rendered":"https:\/\/mdbookkeepservices.com\/?p=1106"},"modified":"2019-01-28T16:45:04","modified_gmt":"2019-01-28T16:45:04","slug":"how-does-the-20-qualified-business-income-deduction-work","status":"publish","type":"post","link":"https:\/\/mdbookkeepservices.com\/index.php\/2019\/01\/28\/how-does-the-20-qualified-business-income-deduction-work\/","title":{"rendered":"How does the 20% qualified business income deduction work?"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">This is not an easy deduction to understand, but we will do the best we can to simplify it for you. The 20% Qualified Business Income Deduction apart of the Tax Cuts and Jobs Act. It is also known as a Section 199A deduction. \u00a0\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Under the new law, after January 1, 2018 the owner of a: <\/span><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">sole proprietorship reported directly on Schedule C<\/span><\/li>\n<li><span style=\"font-weight: 400;\">rental activity reported directly on Schedule E<\/span><\/li>\n<li><span style=\"font-weight: 400;\">S corporation, or<\/span><\/li>\n<li><span style=\"font-weight: 400;\">partnership&#8230;<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">&#8230;is entitled to take a deduction equal to 20% of the &#8220;qualified business income&#8221; earned from the business.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Qualified business income is best described as the ordinary, non-investment income of the business. So we don\u2019t include things like interest, dividend income or capital gains from the sale of property.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The deduction, however, is limited. It is limited to the LESSER OF:<\/span><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">20% of qualified business income, or<\/span><\/li>\n<li><span style=\"font-weight: 400;\">50% of the total W-2 wages paid by the business.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">There is also an alternative limitation based on the owner&#8217;s allocable share of 2.5% of the unadjusted basis of certain business assets, but we\u2019re not going to discuss that today.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It is important to note the \u201c50% of W-2 wage limitation\u201d because sometimes it will apply to you and sometimes it may not apply. It will apply to you when and if the total \u00a0TAXABLE INCOME of the business owner (you) is more than $315,000 for the year (if married, $157,500 if single). It is said that there is a short range of income in excess of these thresholds where the W-2 limitation is phased in, but by the time taxable income reaches $415,000 (if married, $207,500 if single), the &#8220;50% of W-2 wage limitation&#8221; applies in full.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">So let\u2019s look at an example of this so that we can shed some light on the subject and hopefully make clearer. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">A Forbes article really had a great example- so we are listing their example here (<\/span><span style=\"font-weight: 400;\"><a href=\"https:\/\/www.forbes.com\/sites\/anthonynitti\/2018\/01\/04\/the-new-qualified-business-income-deduction-varies-based-on-your-business-type-or-does-it\/#738196ed2076\">The New &#8216;Qualified Business Income Deduction&#8217; Varies Based On Your Business Type &#8211; Or Does It?<\/a>)<\/span><\/p>\n<p><i><span style=\"font-weight: 400;\">\u201cExample: A, a married taxpayer, operates a business as a sole proprietor. The business has one employee, who is paid $50,000 during 2018. The business has no significant assets. During 2018, the business generates $200,000 of income to A, and A&#8217;s total taxable income, after deductions, is $215,000. A is entitled to a deduction of $40,000 ($200,000 * 20%). The &#8220;W-2 wage limitation&#8221; &#8212; which would normally be $25,000 ($50,000 * 50%) does not apply because A&#8217;s taxable income is less than $315,000.\u201d<\/span><\/i><\/p>\n<p><span style=\"font-weight: 400;\">It is also important to note that there are other exceptions that may disqualify your business to this deduction. So let\u2019s take a look at the Specified service trade or business (what the IRS calls SSTB). This includes a trade or business that involves the performance of services in the fields of health, law, accounting, actuarial science, performing arts, sonsulting, athletics, financial services, investing and investment management, trading, dealing in certain assets or any trade or business where the principal asset is the reputation or skill of one or more of its employees. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">The trick to these SSTB\u2019s is that you \u00a0have to surpass the income limitations before the exemption kicks in. The amounts are \u00a0<\/span><span style=\"font-weight: 400;\">$315,000 for the year if married and $157,500 for all other taxpayers. If you\u2019d like to know more about this phase-in range please visit the <a href=\"https:\/\/www.irs.gov\/newsroom\/tax-cuts-and-jobs-act-provision-11011-section-199a-qualified-business-income-deduction-faqs\">IRS and look at Q6<\/a>.\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>This is not an easy deduction to understand, but we will do the best we can to simplify it for you. The 20% Qualified Business Income Deduction apart of the Tax Cuts and Jobs Act. It is also known as a Section 199A deduction. \u00a0\u00a0 Under the new law, after January 1, 2018 the owner [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[36,88],"tags":[],"class_list":["post-1106","post","type-post","status-publish","format-standard","hentry","category-business-tips","category-tax-tips"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/mdbookkeepservices.com\/index.php\/wp-json\/wp\/v2\/posts\/1106","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mdbookkeepservices.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mdbookkeepservices.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mdbookkeepservices.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mdbookkeepservices.com\/index.php\/wp-json\/wp\/v2\/comments?post=1106"}],"version-history":[{"count":3,"href":"https:\/\/mdbookkeepservices.com\/index.php\/wp-json\/wp\/v2\/posts\/1106\/revisions"}],"predecessor-version":[{"id":1110,"href":"https:\/\/mdbookkeepservices.com\/index.php\/wp-json\/wp\/v2\/posts\/1106\/revisions\/1110"}],"wp:attachment":[{"href":"https:\/\/mdbookkeepservices.com\/index.php\/wp-json\/wp\/v2\/media?parent=1106"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mdbookkeepservices.com\/index.php\/wp-json\/wp\/v2\/categories?post=1106"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mdbookkeepservices.com\/index.php\/wp-json\/wp\/v2\/tags?post=1106"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}