20% Pass-Through Deduction & Other Business Changes

 

Section 199A (Pass-Through Deduction)

 

If you are a ....

  • Sole Proprietorship
  • LLC
  • Partnership
  • "S" Corporation
  • Owner of Income Property

You may be eligible to deduct up to 20% of the income earned by the business or income property.  The deduction reduces taxable income, but not your AGI (adjusted gross income) nor your self-employment tax.  The Pass-Through Deduction begins to phase out for individuals at $157,500 and for MFJ (Married Filing Joint) returns at $315,000.  The deduction will not apply to "specified service businesses" in the fields of health, law, consulting, athletics, financial and brokerage services where the principal asset is the reputation or skill of one or more employees or owners above the total phase out income limits of $207,500 for single and $415,000 for married filing joint.  To determine if income qualifies, you may also need to determine if there are W-2 wages and the unadjusted basis of qualified property immediately after acquisition. The 282 page Section 199A tax code has several other guidelines and nuances that will impact how much of the 20% deduction you will be able to capitalize on.  Let EG Tax assist you in filing your return to capitalize on the new 20% QBI (Qualified Business Income) deduction.

 

Other Business Changes:

Corporate Tax Rate ("C" Corp.):  Reduced to a flate rate of 21%.

Depreciation:  Increase in the allowable first-year depreciation deduction for qualified property from 50% to 100%.  Also, higher expensing limits for capital purchases under Code Section 179.  However, higher expensing is likely to reduce the 20% deduction.

Entertainment & Meal Expenses:  There is no longer a deduction for entertainment expenses.  The 50% deduction for meal expenses survives if the taxpayer can identify the meal expenses separately form entertainment expenses.