One of the most complicated yet compelling provisions of the recently enacted tax reform is the addition of §199A to the Internal Revenue Code. Continue reading to hear from Morris Law Group's top tax attorneys on the issue.
Opportunities for New Deductions Under 199A
§199A provides a deduction for business owners of pass-through entities (non-corporations). Subject to the thresholds and exceptions described below, §199A permits such pass-through business owners to deduct up to 20% of their qualified business income.
- The lesser of (A) the taxpayer’s “combined qualified business income amount;” or (B) 20% of the excess of the taxpayer’s taxable income for the taxable year over any net capital gains plus the aggregate amount of qualified cooperative dividends, plus
- The lesser of (A) 20% of the aggregate amount of the qualified cooperative dividends of the taxpayer for the taxable year; or (B) the taxpayer’s taxable income (reduced by net capital gain).
Phase-Out Thresholds under 199A
For non-service businesses, once income reaches $415,000 ($207,500 for a single filer), the deduction is capped at the lesser of:
- 20% of qualified business income; or
- The greater of:
- 50% of W-2 wages paid to employees; or
- 25% of W-2 wages paid to employees plus 2.5% of the unadjusted basis of qualified property in the business.
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