Section 199 A Qualified Business Income Deduction Effective for tax years beginning after December 31, 2007 and before January 1, 2026 Please note that deduction is on your personal tax return and not on business tax return It consists of three deductions a) 20% pass-through Deduction if your Taxable Income is less than $ 415,000 for married filing jointly a-1) If your income is more than $ 415,000 for a married couple and your are not a specified business then amount of deduction you can take is based on certain specified rules b) Deduction equal to 20% of REIT Dividends and Public Traded Partnerships Income. Available to everyone without any conditions c) 20% pass-through deduction for specified agricultural and horticultural cooperatives. We will not talk any further about this deduction as it doesn’t apply to almost anyone here

Section 199 A Qualified Business Income Deduction A step by step approach Make sure each of your ventures rise to the level of a Sec 162 trade or business For each Sec 162 venture compute Qualified Business Income (QBI). Say it is $ 100,000. Generally, it is income per your profit and loss statement for the venture for venture’s tax return. On your personal tax return is your taxable income less than $ 315,000. Say it is $ 300,000 then your taxable income will be reduced by 20% of your QBI $ 100,000 or $ 20,000. You will pay tax on $ 280,000 ($300,000 less $ 20,000) instead of $ 300,000 as you may have done in the past.

Section 199 A Qualified Business Income Deduction A step by step approach If your filing married jointly and your taxable income is between $ 315,000 and $ 415,000 and if you are a Specified Service Trade or Business (SSTB) then QBI deduction will be phased out. It will be zero if your Taxable income is more than $ 415,000. What is SSTB? An SSTB is any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners, and any trade or business that involves the performance of services that consist of investing and investment management, trading, or dealing in securities, partnership interests, or commodities.

Section 199 A Qualified Business Income Deduction A step by step approach What if you are not SSTB? As the code defines you are an eligible business. Remember the Magic Number for Taxable Income of $ 315,000 for married filing jointly. If you are below that just go ahead and take 20% of your QBI as deduction against your taxable income If your Taxable Income is more than $ 315,000 then your QBI deduction will lower of the two amounts 8a) 20% of your QBI 8b-1) 50% of your share of W-2 wages paid by the business, 8b-2) 25% of those same wages, plus 2.5% of your share of the unadjusted basis immediately after acquisition(UBIA) 8b-3) Compare 8b-1 and 8b-2. Take the larger of the two. Let us call it 8c 8-d) Your QBI deduction is the lower of 8a and 8c plus 20% of any REIT dividends and PTP income.

Section 199 A Qualified Business Income Deduction C Corp Vs S Corp C Corp S Corp Income $ 100,000 $ 100,000 Corp FIT (21,000) 0 Dividends $ 79,000 $ 100,000 QBI Deduction (20,000) Taxable Income 80,000 Personal FIT (18,802) (29,600) Net Income $ 60,198 $ 70,400

Section 199 A Qualified Business Income Deduction Other Considerations for QBI Deduction Whether to aggregate or not Whether to change the form of doing business