The IRS issued final regulations for business deductions under section 199A. The final rule more fully explains who stands to profit from the deduction for qualified business income ? and who will be left out.
Section 199A allows business owners that pass through income from business to personal returns to deduct up to 20% of earnings from the businesses. But there are exceptions and rules, depending on how much is earned and how it’s been earned, that must be followed.The final rule simplifies who qualifies in time for tax filing season. The tax break is available to pass-through businesses whose owners pay tax on personal tax returns. Taxpayers that earn less than $157,500, or $315,000 married filing jointly, can deduct 20 percent of the taxable income received the pass-through business from their overall taxable income. For service professionals, the break fully phases out if they earn more than $207,500, or $415,00 if married.
The deduction is not available for wage income or business income earned through a C corporation, and is only available to U.S. taxpayers with taxable income below defined thresholds that operate in certain types or trade or business. These limitations are subject to phase-in rules based on taxable income above the threshold amount.
More questions remain to be answered, and taxpayers can expect additional guidance for:
- Treatment of acquisitions, dispositions and short taxable years
- Treatment of deduction for taxpayers with multiple trades and businesses held within the same entity
- Certain payments to partners for services rendered in a non-partner capacity
- Allocation of W-2 wages and UBIA of qualified property
- Restricting allocation of items and wages under section 199
- Agriculture and horticulture industries
Despite simplifying who qualifies, individual returns claiming 199A deductions got a lot more complicated. Taxpayers can file 2018 returns using the proposed rules or final rules, but it may take some work to dig through the nuances of the new tax code and quantify savings. If you qualify, Section 199A could mean tens of thousands of dollars of extra cash in your pocket. Contact your TaxOps Advisor to see if you qualify for this tax reform perk.
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