Understanding the New §199A
By: Joshua B. Glaser, Esq., LL.M. - February 20, 2018
One of the most complicated yet compelling provisions of the recently enacted tax reform is the addition of §199A to the Internal Revenue Code. §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).
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.