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Tax Pros on Demand : Qualified Business Income Deduction

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The TCJA introduced a new deduction available to taxpayers with qualifying business income. It is first available in tax years beginning after December 31, 2017 (starting in 2018 for calendar year taxpayers). The deduction is referred to alternatively as the qualified business income (QBI) deduction, the §199A deduction, the 20% deduction, and the pass-through deduction. Here, we’ll refer to it as the QBI deduction. This is the first in a series of articles on the new deduction. We’ll cover the basic calculation, who is eligible to claim the QBI deduction and some of the applicable definitions. 

IRS news release IR-2018-162 announces the release of proposed regulations and Notice 2018-64 which details how W-2 wages are calculated for purposes of the wage limit (part of the QBI deduction calculation for higher-income taxpayers). The news release also links to FAQs covering many of the main QBI deduction concepts. Eligible taxpayers. Although it is sometimes called the “pass-through” deduction, the QBI deduction is not only for passthrough entities. Taxpayers with qualified business income from sole proprietorships (Schedule C) and noncorporate farms (Schedule F) are potentially eligible for the deduction, as well as those with income from S corporations, partnerships, trusts, and estates. Qualified business income and the basic deduction. Qualified business income is defined as the net of items of income, gain, deduction, and loss from a qualified trade or business which, generally, means one of the types of business entities listed above. The items must be effectively connected with a U.S. trade or business. 

Your Tax Pro on Demand, 

 Jacqueline Jessica Winters

 215.550.3636

 

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