Section 199A Qualified Business Income and Latest IRS Guidance and Regs
Author: James R. Hamill
||2 hours for CPAs
2 hours Federal Tax Law Updates for EAs and OTRPs
2 hours Federal Tax Updates for CTEC
IRS Guidance Clarifies Section 199A Qualified Business Income Deduction
Effective for the 2018 tax year Section 199A allows a 20% deduction for “qualified business income.” This deduction applies to any business income earned outside a C corporation, so it will affect schedule C filers, and income earned in a partnership or an S corporation. On August 8, 2018, the IRS issued its long-awaited guidance on how this deduction will work for 2018 returns for affected taxpayers.
The mechanics of the deduction are not that difficult, but the deduction either phases out or may be limited if taxable income exceeds a threshold amount. For service businesses the deduction can be lost when income reaches the end of the phase-out range. For non-service businesses the deduction may be limited based on the W-2 wages paid from the business or a combination of W-2 wages and unadjusted basis of property used in the business.
Did the IRS clarify whether a business is a service business? This and more questions will be answered in this two-hour CPE course. Join Jim Hamill, CPA, Ph.D., for a look at how this deduction works and answers to your clients' questions about this money-saving opportunity for Schedule C filers and those in certain LLCs, S corps and partnerships.
It may also be possible to plan to maximize the deduction when the taxpayer is otherwise in the phase-out range. This session will discuss those issues, and many others, to allow you to properly advise clients.
Publication Date: August 2018
CPAs, EAs, tax preparers and other tax professionals with responsibility for advising clients with business income on their tax returns.
- IRS Guidance issued August 8, 2018 on Section 199A deduction
- Computation of the Section 199A deduction
- Limits based on taxable income of the qualified business
- Limits based on the taxpayer's taxable income
- Phase-out computations for a service business
- Wage or wage/capital limitations on non-service businesses
- Planning to control taxable income
- Impact of Section 199A on purchase price allocations
- How to determine unadjusted basis of business assets
- What is a service business
- What is business income
- Reporting issues for flow through entities
- Recognize the Section 199A deduction for taxpayers above the threshold income level and for other taxpayers
- Identify planning opportunities to maximize the deduction
- Define a service business as that term is used in Section 199A
- Identify and apply IRS guidance of August 8, 2018 when working with taxpayers on the QBID
- Recognize types of inelgible taxpayers
- Identify correct statements regarding qualified business income
- Differentiate statements with respect to aggregation
- Describe compensation for services or capital
- Recognize which type of interest income is included in qualified business income for purposes of the §199A deduction
- Differentiate aggregation/segregation
- Identify the threshold amount for QBID filers
- Recognize which service businesses cannot be segregated if there is greater than what percent common ownership
NASBA Field of Study
Taxes (2 hours)
Basic understanding of federal income taxation for individuals and pass-through entities.