Business Income Tax Returns (#1 in series)
Q: Do we have time to go over section 199 deductions when going over section 179?
A: The Section 199A deduction for pass-through entities was signed into law as part of the Tax Cuts and Jobs Act of 2017. Just as the TCJA benefited C corporations by reducing the corporate tax rate, the new 199A deduction was created to provide similar tax relief for the nation’s small and mid-size businesses by offering an up to 20% deduction to pass-through entities.
In essence the Section 1999A deduction:
- Applies only to pass-through entities per the 2017 Tax Cuts and Jobs Act.
- Allows up to 20% deduction of pass-through business income for owners or partners.
Real estate investment trusts (REITS) are also eligible for the deduction.
If a taxpayer’s taxable income is $315,000 for someone filing a joint return, then the deduction is the lesser of 20% of qualitied business income or 20% of overall taxable income.
If taxpayers taxable income is in excess of $315,000, certain limitations apply, i.e., , lesser of 20% of qualified business income or 50% of W-2 wages or 25% of W-2 wages with respect to qualified business income plus 2.5% of qualified property.
Certain businesses are excluded from the deduction – health, law, accounting, actuarial sciences, performing arts, consulting, athletics, financial services, brokerage services, investing and investment management, trading, dealing in securities, and businesses whose principal asset is reputation.
Q: There have been some format changes for 2018 tax returns vs. prior years. Will we go over the format changes compared to the prior years? The Form 1040s format is especially different in 2017 and 2018.
A: We covered changes in the 2018 business income tax returns in the first session, and we will get into the format changes for Form 1040 in Session 4 on Personal Income Tax Returns. In the interim, please see the attached Form 1040 conversion guide.