Section 199A Sumary

With the introduction of the new tax law at the beginning of this year taxpayers should review any changes that may impact their taxes. One of the most significant additions that will effect many business and business owners is Section 199A. Below is a brief outline of the law and how to apply it to individual taxpayers. After reading, if you have any questions contact Wegner Law PLLC for more information

  • Reduces taxes on all qualified income
  • Deduction applies to Adjusted Gross Income (“below the line”)
  • Deduction does not apply to wages received by the taxpayer
  • Applies to pass-through entities, including:
    • Limited liability companies taxed as subchapter S corporations

    • Limited liability companies taxed as partnerships

    • Partnerships (including, general partnerships, limited partnerships, limited liability partnerships, etc.}

    • Corporations taxed as subchapter S corporations

    • Sole proprietorships

    • Single Member Limited Liability Companies (not taxed as a subchapter S corporation).

  • Does not apply to:
    • Trusts or RIETS
    • “Specified Services” over $315,000 (or $157,000 for single filers) such as:
      • Traditional service professions such as doctors, attorneys, accountants, actuaries and consultants
      • Traditional service professions such as doctors, attorneys, accountants, actuaries and consultants
      • Financial services
      • Athletes
      • “[A]ny trade or business where the principal asset is the reputation or skill” of the owner”
        • Definition specifically excludes engineers and architects from definition of Specified Services
      • Deduction is also limited for all other income over $315,000[5] (or $157,000 for single filers), over $315,000 (or $157,000 for single filers) deduction limited to the lessor of:
        • 20 percent of qualified business income with respect to the qualified trade or business; or

        • The greater of:

          • 50 percent of the W-2 wages with respect to the qualified trade or business; or

          • the sum of 25 percent of the W-2 wages with respect to the qualified trade or business, plus 2.5 percent of the unadjusted basis immediately after acquisition of all qualified property.

        • For purposes of determining the amount to use in calculating the limitation, include all W-2 wages (even to the taxpayer/owner of the business)

Applying Section 199A

1.     Does taxpayer work in a specified service trade or business?

If taxable income is less than $157,500 / $315,000 taxpayer receives full 20% deduction.

If taxable income is greater than $157,500 / $315,000 but less than $207,500 / $415,000 then a partial deduction is available.

If taxable income is over than $207,500 / $415,000 than taxpayer receives no deduction.

2.    All other businesses

If taxable income is less than $157,500 / $315,000 then the 20% deduction is fully available.

If taxable income is greater than $157,500 / $315,000 but less than $207,500 / $415,000 then a partial deduction is available with the W-2 and depreciable asset limit calculations phase in.

If taxable income is greater than $207,500 / $415,000 then the 20% deduction is compared to the full W-2 and depreciable asset limit calculations.