Qualified Business Deduction of 20%
15 August 2018
We’ve stayed with big-picture ideas for the last several months, but I wanted to bring to your attention some recent IRS guidance which may be helpful to you with regard to your business income.
On August 8, 2018, the IRS proposed regulations governing the implementation of the 20% deduction for qualified business income.
Here are some highlights of the 20% qualified business deduction, as it currently stands:
1. This deduction is in effect for the first time in 2018. It allows owners of sole proprietorships, partnerships, trusts and S-Corporations to deduct 20% of their qualified business income (QBI).
2. The 20% deduction is generally available to taxpayers whose taxable income falls under $315,000 for joint returns, and $157,500 for other taxpayers.
3. For taxpayers whose taxable income exceeds the above limits, the proposed deduction is the lesser of:
a. 20% of qualified business income,
Or the greater of:
b. 50% of the W-2 wages with respect to the qualified trade or business, or
c. the sum of 25% of the W-2 wages derived from the qualified trade or business, plus 2.5% of the unadjusted basis immediately after the acquisition of all qualified property.
Generally, “qualified property” means tangible property subject to depreciation, such as real estate held for investment purposes.
4. Qualifying pass-through entities are, generally, sole proprietorships, S-corporations, partnerships (including publicly traded partnerships (PTPs)), and trusts (excluding grantor trusts, but including real estate investment trusts).
5. Excluded from eligibility for the qualified business deduction for those individuals with income higher than the thresholds noted in Item 2 above are:
a. certain businesses who perform services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, financial services, brokerage services, and / or any trade or business in which the principal asset of such trade or business is the reputation and skill of one or more of its employees, and
b. individuals whose income is derived from employment by – rather than ownership of – a business qualifying for the 20% deduction.
The above points represent only highlights of the qualified business deduction and the proposed regulations governing its implementation.
Wishing all parents and students getting ready to start the school year good luck! I am right there with you! Next Wednesday is the day I drop my daughter, Meghan, off in Kentucky for her first college semester.