Individuals with income from sole proprietorships, S corporations, and partnerships may claim a qualified business income deduction for 2018 through 2025.
The section 199A deduction is generally the lesser of the taxpayer’s combined qualified business income, or 20 percent of the excess if any of taxable income over net capital gain.
Wage/Capital Limit
The deductible amount of QBI for each business of the taxpayer is generally limited to the lesser of
A) 20 percent of the taxpayer’s share of the business’s QBI, or
B) a W-2 wage/capital limit, that is the greater of:
- 50% of the taxpayer’s share of the business’s W-2 wages, or
- 25% of the taxpayer’s share of the business’s W-2 wages, plus 2.5% of the taxpayer’s share of the business’s unadjusted basis in qualified property immediately after acquisition (UBIA).
If the taxpayer’s taxable income is below a threshold amount, the W-2 wages/capital limit does not apply.
For married filing jointly, the threshold is $340,100 and the phase-in ceiling is $440,100. For single and head of household filers, the threshold is $170.050 and the phase-in ceiling is $220,050.
Qualified Trade or Business
A qualified trade or business is any trade or business that may deduct business expenses under IRC section 162, other than a trade or business performing services as an employee or a specified service trade or business (SSTB).
The QBI deduction is not allowed for any SSTB that is a trade or business that involves the performance of
- Services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business whose principal asset is the reputation or skill of one or more of its employee/owners; or
- Services consisting of investing and investment management, trading, or dealing in securities, partnership interests, or commodities.
Taxpayers carrying on SSTBs may claim a modified QBI deduction if her taxable income is less than the W-2/capital threshold. The SSTB exclusion is fully phased in for married filing jointly filers if taxable income exceeds $440,100 and for single and head of household filers the phase-in ceiling is 220.050.
For help planning to maximize your QBI deduction, contact Tax Attorney Abtin Barzin.