In 2018, for the first time ever, we have a Section 199A deduction available for qualifying business income from a pass-through entity.
That is provided you qualify.
Over the next three days, we’re going to be discussing the two biggest changes to taxes in 2018: pass-through income deduction and the changes to C Corporation taxes. Put those two together and you may find you need to change up your strategy…QUICK!
Before we jump into the actually strategies, there are some terms you need to know so you can assess what’s your best plan moving forward.
This calculation is your personal taxable income, as shown on your personal Form 1040 Individual Income Tax Return. It’s not the income by company, investment or business. It’s your taxable income.
W-2 Wages & Guaranteed Payments
What is the amount of W-2 wages/guaranteed payments that were paid by the business(es)? This includes wages paid to you (guaranteed payments, in the case of partnerships).
UBIA (Unadjusted Basis of Depreciable Assets Immediately After Acquisition)
What is total of unadjusted basis of depreciable assets immediately after acquisition? This needs to be calculated by business.
QBI (Qualified Business Income)
What is your qualified business income? This is your net business income from pass-through entities (including Schedule C and Schedule E), not including the salary paid to you. In most cases, the business income will be calculated separately but passive real estate investment income is aggregated.
SSTB (Specified Service Trade or Business)
Does your business qualify as a Specified Service Trade or Business? Don’t assume you know the answer to this. The Treasury Department issued temporary Treasury Regs in August 2018 to clarify the definitions. It’s a lot more difficult to escape the SSTB designation then we initially thought. You can go back to read my blogs from August and September 2018 to go through the points, one by one.
Once you know the answer to the above questions, the next step is to assess how helpful the 20% income deduction will be to you. Is it time to add a C Corporation? We’ll discuss those topics in the next two blogs.
For more information on these and other topics, please come join us with the coaching classes. Go to https://www.ustaxaid.com/coaching-program/ for more information!