Pass-through and self-employed business owners stand to gain from a key provision in the recently enacted Tax Cuts and Jobs Act. The Act creates a new deduction of Qualified Business Income (or “QBI”), under IRC Section 199A, effective for tax years beginning after December 31, 2017 and before January 1, 2026.
The new provision allows certain sole proprietors and owners of partnerships and S-Corporations, a deduction of up to 20% of Qualified Business Income. QBI is defined essentially as income and deductions that are involved in conducting a trade or business. Certain items, such as interest and dividend income, are specifically excluded.
The actual implementation of the calculation can become complex for taxpayers with taxable income in excess of $157,500 or $315,000 (single and married filing jointly, respectively). Once taxable income crosses that threshold level, the law varies depending on the type of business you own, how much you paid in qualified wages, the unadjusted basis of qualifying property, and by how much your taxable income exceeds that benchmark.
To provide some clarity to how this new deduction will benefit our clients, we have created a flow chart tool. We encourage you to download it, look it over, and discuss any questions you may have with your PBMares tax advisor.