The Most Talked About Provision of the TCJA

For business owners or individuals who have investments in businesses, the most talked about provision of the new tax law is IRC Section 199 (a)

Since the new law gives C corporations a flat rate of 21%, Congress felt the need to give a tax break to other businesses that are commonly known as “pass through entities”. S Corporations, LLC’s, LLP’s, partnerships, etc.

So, Section 199 (a) was created to accommodate this. It’s very complicated. What it basically says is that an entity’s  “Qualified Business Income (QBI)” MAY qualify for a 20% deduction. But there are tons of exceptions, limitations, and complications.

For instance: Specified Service Businesses (doctors, accountants, consultants, and many more) are limited in their QBI calculations to $415,000 (married filing jointly. MFJ). So a doctor who has QBI of $414,999, can get a 20% deduction of that number, or $82,999 deduction from taxable income. If the same doctor had QBI of 415,001, he/she would get no deduction.

The IRS has just (July 2018) released “proposed” regulations which try to clarify many of the complications. For instance. Does the income from a rental property qualify as QBI? The IRS’s answer is “it depends”. Can you aggregate QBI income from multiple entities that you have interests in? “It depends”.

We will be issuing a series of blog articles dealing with the most common of the items that are affecting most individuals and businesses. Please call us if you have any specific questions. There are planning opportunities for 2018 that can have a large effect of those who come under 199 (a).