Important Tax News!
Earlier this year we informed you of the significant tax changes taking effect in 2018 under the new tax law, the Tax Cuts and Jobs Act. One of those changes should provide a substantial tax benefit to individuals with qualified business income from a partnership, S corporation, LLC or sole proprietorship. This income is sometimes referred to as “pass-through” income.
The deduction is generally equal to 20% of your qualified business income (“QBI”) from pass-through sources and is taken “below the line,” meaning it reduces your taxable income but not your adjusted gross income and is available regardless of whether you itemized deductions or take the standard amount.
Several rules and exceptions are in place to prevent high-income taxpayers from attempting to convert wages or other compensation for personal services into income eligible for the deduction:
- Taxable income above $315,000 for joint filers ($157,500 for single filers) may result in a limited deduction
- Limitations are in place with regard to W-2 wages of the qualified business
- Limitations may include consideration for tangible depreciable property included in the business
- Limitations for those in specified service trades or businesses, such as healthcare, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset is the reputation or skill of its employees
Obviously, the complexities surrounding this substantial new deduction can be formidable, especially if your taxable income exceeds the thresholds discussed above. We would like to work through the mechanics of the deduction with you, with particular attention to the impact it can have on your specific situation. Please give us a call today to discuss this significant new tax benefit.