The Tax Cuts and Jobs Act (P.L. 115-97), enacted Dec. 22, 2017, created, under §199A, a new deduction for up to 20% of qualified business income (QBI) from partnerships, limited liability companies (LLCs), S corporations, trusts, estates, and sole proprietorships for tax years beginning after Dec. 31, 2017. However, determining the §199A deduction amount and availability is a very complex multi-step process that may phase out some or all of the deduction. In the face of this complexity, the text provides a selected overview of the basic components of this below-the-line deduction. Qualified business income, taxpayer's taxable income, wage/capital limit, specified services trade or businesses, and other key components are not only defined and calculated but their interaction is demonstrated and exampled.
- Recognize §199A's limited effective time period, its complex calculation process and the general exclusions, limits, and restrictions applicable to the provision.
- Determine the §199A deduction amount, the type of W-2 wages used in calculating the wage/capital limit and specify how the limit impacts the amount and availability of the deduction.
- Identify qualified business income and loss, its basic components and the ability of a taxpayer to aggregate businesses in its determination.
- Recognize the specified services trade or business exclusion, the listed excluded services and the important exceptions provided by the regulatory de minimis rule. Identify a domestic trade or business.
- General understanding of federal income taxation