Section 199A -Qualified Business Income Deduction
What business are eligible:
- available to individuals with Qualified Business Income
C-Corporations and pass-through entities are not eligible.
Qualified Business Income may be generated by
- Sole proprietors
and reduced by self-employment tax, self-employed health insurance, contributions to retirement plans, etc
Real estate ?
- taxpayer chooses safe harbor,
- rises to section 162 trade or business (engage in the activity on a regular basis primary goal is income or profit)
What is not included in QBI:
- Capital gains or losses
- Interest Income
- Wages, guaranteed payments
- Income not effectively connected with the US
- Items not included in taxable income
If there is a loss from QBI, the negative QBI will be netted against the other QBI in proportion.
Negative QBI that is carried forward will offset positive QBI.
Specified Service Trade or Business must be below the phase-in threshold to qualify for QBID or have less than 10% of the gross receipts from the activity of the specified service.
- -performing arts
- -etc, a trade or business that uses a reputation or skill of one or more employees
the QBI deduction is to the lesser of
- (1) 20% of the business?s QBI,
- or (2) the greater of:
- -(a) 50% of the W-2 wages, or
- -(b) 25% of the W-2 wages plus 2.5% of the business?s unadjusted basis in all qualified property.
W-2 wages and UBIA of qualified property limitations do not apply to taxpayers whose taxable income is at or below the threshold.
Taxable Income Limitation:
A 20% deduction equals (taxable income before QBID minus capital gain) multiples by 20.
Taxable income is AGI minus standard or itemized deduction.
The deduction is claimed on 8995 Qualified Business Income Deduction or 8995-A.
If the income is above the threshold use the formula to deduct the threshold and then divide by the total phase-in range.
A taxpayer may be eligible to aggregate their businesses in order to increase the 199A deduction. (The businesses must meet certain tests to be eligible to be aggregated). Reg.1.199A-4 Once aggregated, the taxpayer must be consistent and report accordingly.
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