Welcome to Robert Hall & Associates

Blog Small Business Tax Advice & Tips, Tax News & Updates

A Guide To The Section 199A or QBI 20% Deduction

The Section 199A 20% deduction is one of the most important changes for businesses in decades. Section 199A of the Internal Revenue Code provides a deduction for qualified business income from sole proprietorships, partnerships and S corporations. It was enacted to provide relief for non-corporate taxpayers by providing them with an incentive to invest in their businesses. In this article, we will discuss what Section 199A is and how it applies to non-corporate taxpayers as well as businesses.

What is the Section 199A 20% deduction?

The Section 199A 20% deduction is a new law that was created to help businesses. Under Section 199A, non-corporate taxpayers are allowed to deduct up to 20% of their qualified business income (QBI), plus up to 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.

Who is eligible for the Section 199A 20% deduction?

Section 199A provides a deduction for qualified business income from sole proprietorships, partnerships and S corporations. In addition, Section 199A is the only way that many non-corporate taxpayers can receive tax relief for their business income.

What are the Section 199A 20% deduction limitations?

The Section 199A 20% deduction is subject to a number of limitations, including:

  • Only non-corporate taxpayers can claim Section 199A deductions
  • The Section 199A deduction cannot exceed an individual’s taxable income for that year (so your total tax savings cannot exceed 20% of your taxable income)

Section 199A deductions are NOT allowed for:

  • Investment businesses
  • Specified service trade or business and activities that do not involve the performance of services in trades or businesses

How do I calculate Section 199A 20% deduction?

In most cases, it’s 20% of the lesser of eligible business income and an amount equal to 20% of the taxpayer’s taxable income minus the taxpayer’s net capital gain, plus 20% of REIT dividends. The deduction is calculated for each person, not for each company.

What is qualified business income (QBI)?

QBI is the net amount of qualified items of income, gain, deduction and loss with respect to a Section 199A trade or business. This means that QBI excludes non-business income such as interest, dividends and capital gains from selling investments.

In conclusion, Section 199A is a great way for non-corporate taxpayers to receive tax relief for their business income. Despite its limitations, Section 199A rules provide some additional flexibility that many non-corporate businesses need.

What’s Inside

Personalized Tax Solutions

Have tax questions? Ask Us.