One of the most notable tax deductions introduced by the Tax Cuts and Jobs Act of 2017 is the 20 percent deduction included in Section 199A. Although the IRS has already released its official regulations, the complexity of the tax deduction means that many people are still confused about what it means. Here are the answers to some common questions about Section 199A and how it could affect you.
Do real estate agents and brokers qualify?
If you’re a real estate agent or broker, you may be wondering whether your profession is treated as a “specified service trade or business,” which means that you wouldn’t qualify for the deduction. The answer is no—real estate agents and brokers are not considered to be one of those trades or businesses.
How are S corporation shareholder wages counted?
You might also be wondering how your S corporation shareholder wages should be counted for the 50 percent wage limitation. Those wages should be considered to be wages paid by the S corporation. As a Schedule C taxpayer, you will not need to make any adjustments for Section 199A when you are preparing your SEP/SIMPLE/401(k) contribution.
Are there other factors that will reduce an individual’s qualified business income?
If you’re wondering whether your qualified business income will be reduced by bonus depreciation, Section 179 expensing, or interest on a loan you took out to purchase stock in an S corporation, the answer is yes.
How can you tell whether you qualify for the Section 199A tax deduction?
You should begin by taking a look at your taxable income. Is your taxable income $157,000 or less if you are single or $315,000 or less if you are married and filing with your partner? Do you have a partnership, proprietorship, S corporation, or another type of pass-through business? If the answer to both of these questions is yes, then you should qualify for a tax deduction under Section 199A.
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