The new Section 199A deduction could provide additional savings on business taxes

The Tax Cuts and Jobs Act of 2017, Provision 11011, Section 199A, has provided a 20% tax deduction for transfer companies. Eligible taxpayers include sole proprietors, S corporations, partnerships, publicly traded partnerships (PTPs), and real estate investment trusts (REITs). Although calculating the deduction could be a difficult challenge at best, many taxpayers could end up increasing their earnings.

Section 199 A, also known as the Qualified Business Income Deduction, has two main components as follows:

1. Eligible taxpayers may be entitled to a deduction of up to 20 percent of the Qualified Business Income (QBI) of a domestic business operated as a sole proprietor or through a partnership, S corporation, trust, or estate. For taxpayers with taxable income that exceeds $ 315,000 for a married couple filing jointly, or $ 157,500 for all other taxpayers, the deduction is subject to limitations such as the type of trade or business, the taxpayer’s taxable income. , the amount of W -2 wages paid by the qualified trade or business and the unadjusted basis immediately after the acquisition (UBIA) of the qualified property held by the trade or business. Income earned through a C corporation or rendering of services as an employee is not eligible for the deduction (www.irs.gov).

2. Eligible taxpayers may also be entitled to a deduction of up to 20 percent of their combined dividends from qualified real estate investment trusts (REITs) and their qualified income from publicly traded companies (PTPs). This component of the section 199A deduction is not limited by W-2 wages or the UBIA of qualifying property (www.irs.gov).

At this point, you may be wondering how an S corporation, partnership, PTP, or REIT qualifies as a taxpayer when these business structures are considered “independent” entities. Well the answer to that question is that all of the aforementioned business structures report each partner’s or shareholder’s Qualified Business Income (QBI) portion, W-2 wages, unadjusted basis immediately after Qualified Property Acquisition (UBIA) , Qualified REIT Dividends, and Qualified PTP Income on Schedule K-1. Then, the deduction is determined for the applicable taxpayers.

A qualified trade or business as defined by the IRS, is any trade or business, except specified service trade or business that involves the performance of services in accounting, healthcare, law, actuarial science, performing arts, consulting, athletics, services. financial, investments, investments. administration, trade or any trade or business whose main asset is the reputation or ability of one or more of its employees. The exception only applies if the taxpayer’s taxable income exceeds $ 315,000 for a married couple filing jointly, or $ 157,000.00 for everyone else. This exception also applies to taxpayers who perform services as employees (www.irs.gov).