Section 199A Deduction

The Section 199 deduction is eliminated for tax years after 2018, for non-corporate taxpayers and for tax years after 2019 for C corporation taxpayers. Under the Tax Cuts and Jobs Act of 2017, a new Section 199A was enacted into law allowing a non-corporate taxpayer a deduction for QBI for taxable years after December 31, 2017, for 10 years. Under the new law, owners of business entities, which are not taxed as ā€œCā€ corporations, are eligible for a 20% Qualified Business Income (QBI) deduction. The deduction for QBI may be limited and/or subject to phase-out, depending on the taxable income of the individual as well as such facts as the type of business, amount of wages paid by the business, and amount of capital assets owned by the business.

The deduction is limited to the greater of (1) 50% of the W-2 wages with respect to the trade or business, or (2) the sum of 25% of the W-2 wages, plus 2.5% of the unadjusted basis after acquisition of all qualified property. The deduction also may not exceed (1) taxable income for the year over (2) net capital gain plus aggregate qualified cooperative dividends.

Qualified business income is the net amount of qualified items of income, gain, deduction, and loss with respect to a qualified trade or business. However, certain investment-related income, reasonable compensation paid to the taxpayer for services to the trade or business, and guaranteed payments, are excluded from qualified business income.

The W-2 wage limitation does not apply to taxpayers with taxable income of less than $164,900 for the year ($329,800 for married filing jointly) and is phased in for taxpayers with taxable income above those thresholds.