Calculating IRC 199A Qualified Pass-Through Business Income Deduction

Description

The deduction for qualified business income of PTEs enacted under Section 199A is among tax reform's most complex components. For tax advisers serving partnerships, trusts, and other PTEs, tax reform creates significant opportunities and challenges.

The law provides for a deduction equal to 20% of the taxpayer's qualified business income from PTEs, 20% of qualified REIT dividends, qualified publicly traded partnership income, and qualified cooperative dividends. However, Section 199A contains significant limitations on pass-through income that is deductible. For example, most professional service partnerships such as attorneys and accountants cannot claim the deduction for their partnership service income.

Calculating the Section 199A deduction sets up significant challenges for tax preparers and advisers. The deduction is subject to wage and capital limitations, with a phase-in of those limits. Advisers must navigate the rules governing carryforward losses against the allowable QBI deduction. Understanding the mechanics involved in calculating the Section 199A deduction is critical to avoid adverse tax consequences due to missed deduction opportunities.

Listen as our experienced panel provides a thorough and practical guide to calculating the Section 199A Deduction of Qualified Business Income Deduction of Pass-Through Entities in the recent tax law.