The Tax Cuts and Jobs Act of 2017, Regulation 11011, Section 199A, has provided a 20% tax deduction for conveyancing businesses. Eligible taxpayers include sole proprietors, S corporations, partnerships, publicly traded companies (PTPs), and real estate investment trusts (REITs). While calculating the deduction could be a difficult challenge at best, many taxpayers could end up adding to their bottom line.
Section 199 A, also known as the qualified business income deduction, has two main components as follows:
- Eligible taxpayers may be entitled to a deduction of up to 20 percent of the qualified business income (QBI) of a domestic business operated as a sole proprietor or through a partnership, S corporation, trust or estate. For taxpayers with taxable income in excess of $315,000 for a married couple filing jointly, or $157,500 for all other taxpayers, the deduction is subject to limitations such as the type of trade or business, the taxpayer’s taxable income, the amount of W-2 wages paid by the qualifying trade or business and the unadjusted basis immediately after acquisition (UBIA) of qualifying trade or business property. Income earned through a C corporation or from rendering services as an employee is not eligible for the deduction (www.irs.gov).
- Eligible taxpayers may also be entitled to a deduction of up to 20 percent of their combined dividends from qualified real estate investment trusts (REITs) and qualified income from publicly traded companies (PTPs). This component of the section 199A deduction is not limited by W-2 wages or the UBIA from qualified property (www.irs.gov).
At this point, you may be wondering how an S-Corporation, Partnership, PTP, or REIT qualifies as a taxpayer when these business structures are considered “separate” entities. Well, the answer to that question is that all of the aforementioned business structures report each partner’s or shareholder’s share of qualified business income (QBI), W-2 wages, unadjusted basis immediately upon acquisition of the qualified property. (UBIA), qualified REIT dividends, and qualified PTP income in the K-1 program. The deduction for applicable taxpayers is then determined.
A qualified trade or business, as defined by the IRS, is any trade or business, except the specified service trade or business that involves the rendering of services in accounting, health, law, actuarial science, performing arts, consulting, athletics, financial services, investing, investment management, trading, or any trade or business in which the principal asset is the reputation or skills of one or more of its employees. The only exception applies if the taxpayer’s taxable income exceeds $315,000 for a married couple filing jointly, or $157,000.00 for everyone else. This exception also applies to taxpayers performing services as employees (www.irs.gov).