“Is Your Business Eligible for This Big Tax Break?”

– Pass-through entities now have a more level planning field with businesses that benefitted from the 2017 corporate tax reduction.
– The Tax Cuts and Jobs Act allows noncorporate owners of pass-through businesses to claim a deduction equal to 20% of their qualified business income.
– Eligibility for the new deduction is limited to qualified trades or businesses in the U.S. that produce income, and excludes specified service trade or business. Eligible for the deduction:
– Any pass-through trade or business that is not an SSTB
– Rental real estate owners who devote at least 250 hours a year to their business and maintain records
– Architects and engineers
– S corporations, partnerships, LLCs, some Schedule E real estate investors, sole proprietorships, and non-grantor trusts and estate with an interest in a pass through entity

Ineligible for the deduction:
– SSTBs, where the principal asset of the business is the reputation or skill of one or more employees
– Taxpayers whose trade or business is being an employee

Exception:
– Some SSTBs are still eligible based on the taxpayer’s taxable income. 1. An SSTB may qualify for the deduction if the owner’s taxable income is below the applicable threshold for their filing status.
2. QBI is calculated as the net amount of the business’s qualified income, gain, deduction, and loss, with certain adjustments needed.
3. For non-SSTBs, the deduction is limited based on the lesser of 50% of QBI or a calculation involving W-2 wages and the unadjusted basis of qualified property used in the trade or business.
4. The deduction is increased by 20% of REIT dividends and PTP income, which are added back to the QBI amount.
5. The deduction is determined by comparing 20% of the combined QBI amount to 20% of adjustable taxable income. The lesser of these two figures is the deduction. 1. The QBI deduction involves complex computations and technicalities.
2. The IRS’s guidance can be helpful, but a tax advisor may be needed for further detail.
3. Sources for information on the QBI deduction include “Getting the 411 on IRC 199A” and “The 20% Deduction For Business Income From Pass-Through Entities”.
4. Raymond James does not provide tax or legal services and recommends discussing these matters with the appropriate professional.

https://www.raymondjames.com/commentary-and-insights/tax-planning/2023/11/08/does-your-business-qualify-for-this-notable-tax-deduction