Qualified Business Income Deduction

Qualified Business Income Deduction
Presented by Micah J. Stewart, JD, LLM Director, Tax Services Today’s session is intended to outline the multitude of changes enacted in the Tax Cuts and Jobs Act. Some of the provisions are temporary changes to today’s existing law, some permanent, or as permanent as Congress will allow them to be, and some are completely new code sections which will change tax planning strategies going forward. One thing to keep in mind for our presentation, most of the changes are effective December 31, 2017, unless specified otherwise, and many provisions of the individual expire in Lots of corporate changes are permanent, and many individual provisions are temporary. General feel is that there will be some tax reduction benefit overall, but every taxpayer will be affected differently, and no one will be filing income tax returns on a postcard. January 7, 2019

Choice of Entity Considerations: C-Corporation
“Double taxation” – taxed at corporate and at shareholder (dividend) Recognizes gain on distribution of appreciated assets and is also reported as dividend to shareholder Excessive “reasonable” salary concerns Losses not deductible by shareholders – corporate NOL Limitations on deductibility of investment interest incurred in the acquisition of C-corporation stock Potential constructive dividends if personal use of corporate assets or funds Accumulated earnings tax Personal holding company tax 21% tax for C corporations sounds appealing, but C corporations are still subject to double taxation, and capital gains rates remain unchanged at 15-20% depending on the tax bracket of the individual. The after-tax effective rate for c corp earnings are less favorable with this. Also, Louisiana tax rates for corporations are higher than individual rates. What if Congress decides 21% is too low? There are many factors to be considered in choosing the entity type. In an effort to keep the double taxation at bay, often high salaries are paid to the shareholders and excessive pay is a concern of the IRS. Losses remain at the entity level and cannot offset other shareholders’ other income. Constructive dividends are a concern in closely held corporations when corporation pays personal expenses of owner Loan interest on funds borrowed to purchase the ownership interest are subject to investment interest limitations. The accumulated earnings tax (AET) is a penalty tax imposed on corporations for unreasonably accumulating earnings in the corporation, essentially penalty for not paying dividends. A corporation is a PHC if it meets two objective tests - an income test and a stock ownership test.

Choice of Entity Considerations: S-Corporation
Conduit pass-through entity – no double taxation Possibly deduct shareholder interest expense incurred with acquisition loan proceeds Minimize payroll tax costs with lower “reasonable” salaries and increased distributions Gain on the sale of stock is capital gain, potential for installment method reporting Only shareholder loans directly to the S-corporation can be included as debt basis Distributions of property at fair market value At liquidation, S-corporation recognizes gain regardless of whether the assets are distributed themselves or sold and proceeds distributed Built-in gains tax for prior C-corporation – five-year lookback Certain fringe benefits to 2 percent shareholders included in shareholders’ income Formalities with S-corporation – elections, ownership, income-distribution allocations S Corporations are a conduit entity taxed at the shareholder level – no double taxation. Distribute tax-free withdrawals to the extent of basis in stock and undistributed earnings. One requirement of the S Corporation provides that income must be allocated at ownership percentage, so there is no flexibility of special allocations. Also, distributions must be paid to S shareholders proportionately. Shareholder can deduct interest expense incurred by the shareholder to acquire the stock of the S corporation; if the shareholder materially participates in the trade or business and all of the corporation's assets are used in the conduct of the business, as opposed to investment interest incurred in the acquisition of C corporation stock. S corp offers flexibility for the use of cash basis method of accounting for service entities Whereas the C corporation worry for the IRS is excessively high salaries, S corporation owners want to pay as low a salary as reasonable to minimize payroll tax costs; and increasing S distributions. Again , compensation paid to shareholder/employees must be reasonable. Distribution of property from S corp is at FMV, so gain is triggered inside the s corporation on distributions of property, and also in liquidating distributions. Caution: Not best planning strategy to transfer appreciated property into an S Corporation. Holding ownership of appreciating property may be better suited for ownership in a LLC partnership Also, beware in converting S Corporation to LLC Partnership because of the gain recognition triggered in the merger transaction.

Choice of Entity Considerations: LLC Partnership
Conduit pass-through entity – no double taxation Flexibility: operating agreement establishes allocation of income, deductions, credits Tax-free distribution of appreciated property Contribution of property to LLC generally non-taxable event; however, interest received for services is taxable Basis includes owner’s share of partnership’s liabilities Partnership losses may be deductible by the partners to extent of basis in partnership Optional elections to step up basis in partnership property Can have C-corporation, S-corporation, and trust members Self-employment tax cost – owners will be subject to FICA on all LLC earnings Disposition of partnership interest with §751 assets can trigger ordinary income Hybrid entity combining the limited liability attribute of corporation with the pass-through single level of taxation of a partnership. This offers flexibility: the operating agreement can be written to establish the allocation of income, deductions, losses, and credits among members as long as “substantial economic effect” is maintained Contribution of property to LLC, generally nontaxable event, However, care should be taken with contribution of properties subject to liabilities. Being relieved of liability is treated as if the partner received a distribution of cash. Partnership allows for tax free distribution of appreciated property Complicated operating agreements can be costly to have drafted and situations with complex income allocations or targeted waterfall allocations can be costly to maintain. One downside, is that generally active owners will be subject to self-employment tax on all of their LLC earnings. And for the inactive member, the 3.8% NIIT is still around. Disposition of partnership with §751 assets trigger ordinary income. Section 751 assets include unrealized receivables, inventory items, and depreciation recapture

§199A – Deduction for Qualified Business Income (QBI)
S-Corporation vs. C-Corporation Marginal Rate Example – Taxable Income $315,000 MFJ Pass-through Entity C-Corporation Business income $100.00 Corporate income Pass-through bus. deduct 20% (20.00) Corporate income tax 21% (21.00) Taxable income $80.00 Net to corporation $79.00 Income tax 24% bracket $19.20 Dividend to shareholder Shldr cap gain tax 18.8% (14.85) Less income tax (19.20) Net to business owner $80.80 Net to shareholder $64.15 Effective tax rate 19.20% 35.85% So what is the cost of double taxation? For this simplified example, with no limitation on the 20% passthrough deduction, which Larissa will explain next, you can see after tax for the passthrough entity nets $80.80, and the double tax c corporation only nets $64.15. Now, I am not suggesting that no one should organize as a C corp. Start-ups looking to grow and sell out, and other growth-mode companies where the company will be retaining the profits to make acquisitions or fund business expansions – sure, there won’t be dividends, and yes, the numbers will show more favorably. There are some places where a c corporation may make sense, but the flat rate 21% is not the end-all best planning strategy for everyone, and won’t be the end of partnerships and S corporations. Louisiana state income tax will further spread the difference

20 Percent QBI Deduction (Generally)
20 percent deduction that effectively reduces the top rate on qualifying business income from 37 percent to 29.6 percent Does not apply to specified “service” trade or businesses Deduction only applies to income tax and does not reduce self-employment or 3.8 percent net investment income tax calculations Sunset date: December 31, 2025 (Tax Cuts 2.0?) In general, taxpayers will be allowed a deduction that’s equal to the lesser of 20% of their taxable income in excess of their net capital gain or their combined business income. You may have noticed that we have to subtract net capital gains from our taxable income. The reasoning is that we’re already getting a reduced tax rate for that capital gain, so we shouldn’t get an additional deduction for it. Combined business income is generally the sum of 20% of qualified business income subject to a couple limitations that I’ll discuss in a moment. It is important to note that the qualified business income, subject to limitations, must be calculated for each business. This means that if you invest in multiple pass-through entities, this provision can make preparing your tax returns more time consuming. So, what is Qualified Business Income or QBI? Basically, QBI is just your ordinary income and deductions from pass-through entities and sole proprietorships, such as Sch C and Sch E activities. Investment income is not included in the definition, and any wages or guaranteed payments you receive from pass-through businesses are also not included in QBI. Trusts – Anti-abuse rules Proposed regulations were recently released. The IRS is waiting for comments from professionals, due by October 1st. The public hearing is scheduled for October 16th.

20 Percent QBI Deduction (cont.)
The deduction is intended to match the decreased corporate tax rate However this deduction sunsets – the corporate tax rate does not It was also intended to create W-2 growth (see wage limitations) Still many areas of uncertainty despite the proposed regs Reporting for pass-through entities will be more complex, especially for tiered partnerships In general, taxpayers will be allowed a deduction that’s equal to the lesser of 20% of their taxable income in excess of their net capital gain or their combined business income. You may have noticed that we have to subtract net capital gains from our taxable income. The reasoning is that we’re already getting a reduced tax rate for that capital gain, so we shouldn’t get an additional deduction for it. Combined business income is generally the sum of 20% of qualified business income subject to a couple limitations that I’ll discuss in a moment. It is important to note that the qualified business income, subject to limitations, must be calculated for each business. This means that if you invest in multiple pass-through entities, this provision can make preparing your tax returns more time consuming. So, what is Qualified Business Income or QBI? Basically, QBI is just your ordinary income and deductions from pass-through entities and sole proprietorships, such as Sch C and Sch E activities. Investment income is not included in the definition, and any wages or guaranteed payments you receive from pass-through businesses are also not included in QBI. Trusts – Anti-abuse rules Proposed regulations were recently released. The IRS is waiting for comments from professionals, due by October 1st. The public hearing is scheduled for October 16th.

20 Percent QBI Deduction (cont.)
Eligible taxpayers: C-corporations are not eligible for the deduction Trusts are eligible for the deduction Both active and passive owners are eligible Deduction does not reduce owner’s basis Deduction generally limited to the lesser of: 20 percent of taxable income less capital gains Combined business income: Sum of 20 percent of QBI subject to limitations (calculated for each business) In general, taxpayers will be allowed a deduction that’s equal to the lesser of 20% of their taxable income in excess of their net capital gain or their combined business income. You may have noticed that we have to subtract net capital gains from our taxable income. The reasoning is that we’re already getting a reduced tax rate for that capital gain, so we shouldn’t get an additional deduction for it. Combined business income is generally the sum of 20% of qualified business income subject to a couple limitations that I’ll discuss in a moment. It is important to note that the qualified business income, subject to limitations, must be calculated for each business. This means that if you invest in multiple pass-through entities, this provision can make preparing your tax returns more time consuming. So, what is Qualified Business Income or QBI? Basically, QBI is just your ordinary income and deductions from pass-through entities and sole proprietorships, such as Sch C and Sch E activities. Investment income is not included in the definition, and any wages or guaranteed payments you receive from pass-through businesses are also not included in QBI. Trusts – Anti-abuse rules Proposed regulations were recently released. The IRS is waiting for comments from professionals, due by October 1st. The public hearing is scheduled for October 16th.

§199A – Deduction for Qualified Business Income
Marginal Rate Example – Taxable Income $600,000 MFJ Qualified business income $70,000 General Deduction §199A deduction (14,000) Taxable income from business $56,000 General deduction $14,000 Income tax 37% $20,720 Wage and Property Limitation W-2 wages $30,000 Effective tax rate 29.60% Unadjusted basis of assets $2,300,000 Greater of: A percent of wages $15,000 B percent of wages $7,500 2.5 percent of assets 57,500 $65,000 Let’s take a look at a joint filer with taxable income of $600,000 and non-service business income of $70,000. The taxpayer’s preliminary QBI deduction would be $14,000. This is simply 20% of QBI. Since the taxpayer is limited based on the taxable income thresholds, we have to figure out what the QBI deduction is ultimately limited to. In this example, the wage and property limitation is $65,000. The reason being that the 25% of wages plus the 2.5% of assets is greater than just the 50% of wages amount. This means that the QBI deduction can’t exceed that number. We aren’t in danger of that, so the QBI deduction is $14,000. The overall §199A deduction would be limited to $120,000 which is 20% of taxable income. The QBI deduction is not even close to that limitation, so the taxpayer’s overall 199A deduction would be $14,000

§199A – Deduction for Qualified Business Income (cont.)
S-Corporation vs. C-Corporation Marginal Rate Example – Taxable Income $600,000 MFJ Pass-through Entity C-Corporation Business income $100.00 Corporate income Pass-through bus. deduct 20% (0.00) Corporate income tax 21% (21.00) Taxable income Net to corporation $79.00 Income tax 37% bracket (37.00) Dividend to shareholder Shldr cap gain tax 23.8% (18.80) Net to business owner $63.00 Net to shareholder $60.20 Effective tax rate 37.0% 39.8% So if I am a specified service professional, over the maximum taxable income and getting zero 20% deduction, what does that look like for effective rates? This illustrates a situation where even a complete disallowance of the pass through deduction is a better scenario than the corporate tax flat rate. Presumes specified service business prohibiting 20 percent pass-through deduction Louisiana state income tax will further spread the difference

Proposed Regulations Proposed regs issued in August of 2018
Approximately 184 pages with preamble Table of contents – §1.199A-1 – Operational rules §1.199A-2 – Determination of W-2 wages and unadjusted basis immediately after acquisition of qualified property §1.199A-3 – Qualified business income, qualified REIT dividends, and qualified PTP income §1.199A-4 – Aggregation §1.199A-5 – Specified service trade or business §1.199A-6 – Relevant pass-through entities (RPEs), publicly traded partnerships (PTPs), trusts and estates

Prop. Reg. §1.199A- 1 Operational Rules
1.199A-1(a) provides a brief overview of regs. Provides – “an individual includes a reference to a trust (other than a grantor trust) or an estate to the extent that the section 199A deduction is determined by the trust or estate under the rules…” 1.199A-1(b) provides key definitions. Key definitions for purposes of this presentation: Applicable percentage means, with respect to any taxable year, 100 percent reduced (not below zero) by the percentage equal to the ratio that the taxable income of the individual for the taxable year in excess of the threshold amount, bears to $50,000 (or $100,000 in the case of a joint return) Phase-in range means a range of taxable income, the lower limit of which is the threshold amount, and the upper limit of which is the threshold amount plus $50,000 (or $100,000 in the case of a joint return) Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Key definitions for purposes of this presentation (con’t): Qualified business income (QBI) means the net amount of qualified items of income, gain, deduction, and loss with respect to any trade or business as determined under the rules Reduction amount means, with respect to any taxable year, the excess amount multiplied by the ratio that the taxable income of the individual for the taxable year in excess of the threshold amount, bears to $50,000 (or $100,000 in the case of a joint return). For purposes of this paragraph (b)(8), the excess amount is 20 percent of QBI over the greater of 50 percent of W-2 wages or the sum of 25 percent of W-2 wages plus 2.5 percent of the UBIA of qualified property Relevant passthrough entity (RPE) means a partnership (other than a PTP) or an S corporation that is owned, directly or indirectly by at least one individual, estate, or trust. A trust or estate is treated as an RPE to the extent it passes through QBI, W-2 wages, UBIA of qualified property, qualified REIT dividends, or qualified PTP income Specified service trade or business (SSTB) means a specified service trade or business as defined in §1.199A-5(b) Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Key definitions for purposes of this presentation (con’t): Threshold amount means, for any taxable year beginning before 2019, $157,500 (or $315,000 in the case of a taxpayer filing a joint return) Pegged to inflation Total QBI amount means the net total QBI from all trades or businesses (including the individual's share of QBI from trades or business conducted by RPEs) Trade or business means a section 162 trade or business other than the trade or business of performing services as an employee. In addition, rental or licensing of tangible or intangible property (rental activity) that does not rise to the level of a section 162 trade or business is nevertheless treated as a trade or business for purposes of section 199A, if the property is rented or licensed to a trade or business which is commonly controlled with lessor or licensor What about triple net leases or bare boat charters? Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Reg. §1.199A-1(c) Mechanics for those with income that doesn’t exceed threshold “The section 199A deduction is determined for individuals with taxable income for the taxable year that does not exceed the threshold amount by adding 20 percent of the total QBI amount (including QBI attributable to an SSTB) and 20 percent of the combined amount of qualified REIT dividends and qualified PTP income (including the individual's share of qualified REIT dividends, and qualified PTP income from RPEs). That sum is then compared to 20 percent of the amount by which the individual's taxable income exceeds net capital gain. The lesser of these two amounts is the individual's section 199A deduction.” Essentially compartmentalize REIT and PTP income Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Reg. §1.199A-1(c)(2) provides carryover rules if income is below threshold amount: “If the total QBI amount is less than zero, the portion of the individual's section 199A deduction related to QBI is zero for the taxable year. The negative total QBI amount is treated as negative QBI from a separate trade or business in the succeeding taxable year of the individual for purposes of section 199A and this section. This carryover rule does not affect the deductibility of the loss for purposes of other provisions of the Code.” Thus if QBI is negative then there is no deduction This negative is carried forward into subsequent years and is treated as negative QBI from separate trades or businesses It has no effect on other deductions The same rule applies for the compartmentalized REIT and PTP income Any negative amount is carried forward and offsets future REIT and/or PTP income Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Below threshold amount carry over rules (con’t) Example 1. A, an unmarried individual, owns and operates a computer repair shop as a sole proprietorship. The business generated $100,000 in net taxable income from operations in A has no capital gains or losses. After allowable deductions not relating to the business, A's total taxable income for 2018 is $81,000. The business's QBI is $100,000, the net amount of its qualified items of income, gain, deduction, and loss. A's section 199A deduction for 2018 is equal to $16,200, the lesser of 20% of A's QBI from the business ($100,000 x 20% = $20,000) and 20% of A's total taxable income for the taxable year ($81,000 x 20% = $16,200). Example 2. Assume the same facts as in Example 1 of this paragraph (c)(3), except that A also has $7,000 in net capital gain for 2018 and that, after allowable deductions not relating to the business, A's taxable income for 2018 is $74,000. A's taxable income minus net capital gain is $67,000 ($74,000 - $7,000). A's section 199A deduction is equal to $13,400, the lesser of 20% of A's QBI from the business ($100,000 x 20% = $20,000) and 20% of A's total taxable income minus net capital gain for the taxable year ($67,000 x 20% = $13,400). Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Below threshold amount carry over rules (con’t) Example 3. B and C are married and file a joint individual income tax return. B earned $500,000 in wages as an employee of an unrelated company in C owns 100% of the shares of X, an S corporation that provides landscaping services. X generated $100,000 in net income from operations in X paid C $150,000 in wages in B and C have no capital gains or losses. After allowable deductions not related to X, B and C's total taxable income for 2018 is $270,000. B's and C's wages are not considered to be income from a trade or business for purposes of the section 199A deduction. Because X is an S corporation, its QBI is determined at the S corporation level. X's QBI is $100,000, the net amount of its qualified items of income, gain, deduction, and loss. The wages paid by X to C are considered to be a qualified item of deduction for purposes of determining X's QBI. The section 199A deduction with respect to X's QBI is then determined by C, X's sole shareholder, and is claimed on the joint return filed by B and C. B and C's section 199A deduction is equal to $20,000, the lesser of 20% of C's QBI from the business ($100,000 x 20% = $20,000) and 20% of B and C's total taxable income for the taxable year ($270,000 x 20% = $54,000). Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

For phase in rules have to know whether you fall under one of these: Phase-in of wage base limitation Phase in of SSTB Both (1) and (2) Reg. §1.199A-1(d) Phase in wage limitation – no SSTB The section 199A deduction is determined for individuals with taxable income for the taxable year that exceeds the threshold amount by adding the QBI component and 20 percent of the combined amount of qualified REIT dividends and qualified PTP income (including the individual's share of qualified REIT dividends and qualified PTP income from RPEs). That sum is then compared to 20 percent of the amount by which the individual's taxable income exceeds net capital gain. The lesser of these two amounts is the individual's section 199A deduction. Thus the wage and property limitation limitations kick in Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Reg. §1.199A-1(d) Phase in wage limitation – no SSTB The amount includible in the combined qualified business income amount with respect to the business is determined through the phase-in of the wage-basis limit by the following steps: Calculate 20% of QBI with respect to the business. Determine the full amount of the wage-basis limit without a phase-in. If the full wage-basis limit is less than 20% of QBI, subtract the full wage- basis limit from 20% of QBI. The result is known as the “excess amount.” 297 Calculate the “phase-in percentage” by subtracting the threshold amount ($157,500, or $315,000 for joint filers) from threshold testing taxable income and then divide the resulting amount by $50,000 (or $100,000 for joint filers). Multiply the excess amount calculated in step 3 by the phase-in percentage calculated in step 4. The resulting amount is referred to as the “reduction amount.” 298 Subtract the “reduction amount” calculated in step 5 from 20% of QBI. Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Reg. §1.199A-1(d) Phase in SSTB The SSTB phase in allows a taxpayer who is engaged in an SSTB and who has threshold testing taxable income within the phase-in range to include a portion of the QBI of the SSTB in the taxpayer's combined qualified business income amount, thereby allowing the taxpayer to deduct a percentage of the income earned by the SSTB If the threshold is exceed then no deduction The phase-in of the SSTB rule is determined by calculating an “applicable percentage” and then multiplying each qualified item of income, gain, deduction, loss, W-2 wages, and unadjusted basis for the SSTB by the applicable percentage The applicable percentage is the difference between 100% and a percentage equal to the ratio of (i) the excess of threshold testing taxable income over the threshold amount to (ii) $50,000 (or $100,000 in the case of joint filers) Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Phase-In of Both Wage-Basis Limit and SSTB Rule Determined through the phase-in of the SSTB rule and the wage-basis limit by the following steps: For each SSTB of the taxpayer, multiply the QBI, W-2 wages, and UBIA of qualified property by the “applicable percentage” to determine the amounts taken into account as a result of phase-in of the SSTB rule If the taxpayer has more than one business (including, for this purpose, each SSTB considered in step 1) and at least one of the businesses has negative QBI, reduce the QBI from businesses that produced net positive QBI by the QBI from businesses that produced net negative QBI in proportion to the relative amounts of net positive QBI in the businesses that have net positive QBI For each business (including, for this purpose, each SSTB considered in step 1), determine whether the wage-basis limit applies and calculate the QBI component. If the wage-basis limit applies to a business, calculate the QBI component with a phased-in wage-basis limit by subtracting the “reduction amount” from 20% of its QBI. If the wage-basis limit does not apply to a business, calculate the QBI component for that business by multiplying its QBI by 20% Determine the amount includible in the taxpayer's combined qualified business income amount by adding together the QBI components calculated for each business in step 3 Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Loss-Generating Business Ex 1
Income (Loss) W-2 Wages Business A 500,000 300,000 Business B 400,000 Business C (100,000) NA Assumptions: MFJ – Taxable income $1,000,000 No UBIA for any of the 3 businesses Cannot take 20% of the net $800,000 The determination of the §199A deduction is a multi-step process Not all flow-through income, including sole proprietorship will generate a 20% deduction …. When there is both a loss from one or more qualifying trades or businesses, and income from one or more qualifying trades or businesses, the language in §199A is unclear whether the loss reduces the QBI of the income-generating trades or businesses before or after applying the wage-property limitation into account. Prop Reg took a taxpayer friendly approach: This netting has the effect of allocating negative QBI among all of the qualified businesses with positive QBI in proportion to relative QBI. Prop. Reg. §1.199A-1(d)(2)(iii) provides that the negative QBI generated by a trade or business should be netted against the positive QBI generated by all of the qualifying trades or businesses in which the taxpayer has an interest BEFORE taking the wage-property limitation into account.

Step 1: Is this SSTB? No Step 2: Allocate the QBI loss among the profitable businesses: Business A Business B Business C QBI of profitable business 500,000 400,000 (100,000) Business C QBI Loss 5/9 (55,556) 4/9 (44,444) 100,000 Adjusted QBI $444,444 $355,556

Step 3: Compute relevant W-2 wage amounts: Business A Business B Business C W-2 Wages 300,000 50% W-2 Wages 150,000

Step 4: Determine the QBI amount for each profitable business: Business A Business B Business C QBI 444,444 355,556 NA 20% QBI 88,889 71,111 Wage Limitation (max QBI) 150,000 QBI Amount Step 5: Aggregate QBI Aggregated QBI $88,889

Step 6: Apply taxable income limitation: QBI equals the lesser of : a) Aggregated QBI deduction 88,889 b) Overall taxable income limitation: Taxable income net of Cap Gain 1,000,000 Times 20% 200,000 QBI (199A) deduction:

Loss-Generating Business Carryover Losses Ex 2
Year 1 Income (Loss) W-2 Wages Business A 500,000 300,000 Business B 100,000 Business C (700,000) NA Net carryover loss (100,000) The net carryover loss will reduce QBI next year. Cannot take 20% of the net $800,000 The determination of the §199A deduction is a multi-step process Not all flow-through income, including sole proprietorship will generate a 20% deduction …. When there is both a loss from one or more qualifying trades or businesses, and income from one or more qualifying trades or businesses, the language in §199A is unclear whether the loss reduces the QBI of the income-generating trades or businesses before or after applying the wage-property limitation into account. Prop Reg took a taxpayer friendly approach: This netting has the effect of allocating negative QBI among all of the qualified businesses with positive QBI in proportion to relative QBI. Loss carryover rules apply when a taxpayer has an aggregate loss from all of the taxpayer’s qualifying trades or businesses. This loss is treated as a loss from a qualified trade or business in the succeeding taxable year. The loss is not sourced to the business from which it emanated.

Loss-Generating Business Carryover Losses Ex 2
Year 2 Income (Loss) W-2 Wages Business A 500,000 300,000 Business B closed Business C 250,000 NA Carryforward QBI Loss (100,000) Allocate the QBI loss among the profitable businesses: Business A Business C PY Carryover QBI of profitable business 500,000 250,000 (100,000) Allocate Carryover Loss (66,667) (33,333) 100,000 Adjusted QBI $433,333 $216,667 Note: the loss is not sourced back to the business that generated the loss. It is allocated proportionately to the current year QBI before any wage-property limitations.

Loss Generating Business Passive Losses
Material Participation Income (Loss) W-2 Wages QBI Deduction Business A Nonpassive 500,000 300,000 100,000 Business B Passive (600,000) NA Taxpayer does not have passive income, and the losses from Business B are suspended in the current year as passive activity losses. The loss from Business B does not enter the QBI deduction. At such time as the loss from Business B is freed up under §469, the recognized loss would offset the income from any qualified business for which there was a potential §199A deduction. If there is no potential qualifying business income that year, the loss would continue to carryover for future offset until income or §199A ceases to exist. Guidance needed for pre-2018 PAL and at-risk losses.

Wage and Property Limitations Phase In – Phase Out
Non-Specified Service Business Specified Service Trade or Business Taxable income under $315,000 MFJ (157,500 S) 20% deduction No limitations applied Taxable income $315, ,000 MFJ Wage and property limitations phased-in Deduction phased-out Taxable income over $415,000 MFJ (207,500 S) Wage and property limitations applied No deduction Now that you know what QBI is, let’s find out if you’ll be subject to the two limitations, which are the wage & property limitation and service business limitation. When I discuss this, I’m just going to use the MFJ thresholds. The thresholds for everyone else will be half of the MFJ numbers. Based on a MFJ taxpayer, if taxable income is less than $315,000, the taxpayer has the green light and the deduction is not subject to any limitations. That means that their QBI deduction for the business is simply 20% of its QBI. The two limitations are phased-in over a range of $100,000 beyond the $315,000 if MFJ. This means that if the taxpayer’s income is greater than or equal to $415,000, both limitations will be fully phased-in. But what does that mean? For non-service businesses, this means that their QBI deduction will ultimately be limited to the greater of 50% of W-2 wages or 25% of the W-2 wages plus 2.5% of the unadjusted basis of qualified property. And for pass-through businesses, the taxpayer only uses their share of the wages and property. For service businesses, being fully phased-in to the limitations means that they get a red light and get no §199A deduction at all. For taxpayers with taxable income between $315,000 and $415,000, both service and non-service businesses will get a deduction, but it may be limited. Wage and property limitation – deduction limited to the greater of: 50 percent of W-2 wages (including the employee and owners wages) 25 percent of W-2 wages plus 2.5 percent of unadjusted basis in qualified assets

Specified Service Trade or Business
Example Phase-in SSTB LLC income $320,000 Share of LLC W-2 Wages $160,000 Step 1: Determine Excess SSTB Limitation: Taxable income less phase in threshold: $390,000 - $315,000 $75,000 Excess amount divided by phase-in range: $75,000/$100,000 75% Divided by phase-in range ($100,000 MFJ $50,000 S) EXCESS 25% of SSTB income and W-2 wages eligible 25% x $320,000 SSTB Income QBI $80,000 25% x $160,000 W-2 wages Wage Limit $40,000 QBI (199A) deduction: $80,000 * 20% $16,0000 ** 50% W-2 wage limitation does not come into play in this example: 50% x $40,000 = $20,000 maximum deduction with wage limitation Business income from SSTB is $320,000

Specified Service Trade or Business
Example Phase-in SSTB with W-2 Limitation LLC income $320,000 Share of LLC W-2 Wages $80,000 Step 1: Determine Excess SSTB Limitation: Taxable income less phase in threshold: $390,000 - $315,000 $75,000 Excess amount divided by phase-in range: $75,000/$100,000 75% Divided by phase-in range ($100,000 MFJ $50,000 S) EXCESS 25% of SSTB income and W-2 wages eligible 25% x $320,000 SSTB Income QBI $80,000 25% x $80,000 W-2 wages Wage Limit $20,000 QBI (Qualifying Business Income) $80,000 * 20% $16,000 50% W-2 Wage Limitation $20,000 * 50% $10,000 QBI Deduction is limited by 50% of phase-in wages $10,000 Step one: determine the SSTB Limitation

Qualifying Business Income MFJ vs MFS
Consideration should be given in the case of loss businesses, or wage-property limitations, whether filing married separately may offer benefit. Discussion: Community property vs separate property

Wages Generally What are qualified wages?
W-2 wages Wages paid by a common law employer Wages paid by a common paymaster that are ultimately deducted by the trade or business Wages must be reported on a return filed with the Social Security Administration What are not qualified wages? Guaranteed payments Payments made to independent contractors Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Prop. Reg. §1.199A-2 Wages The determination of W-2 wages must be made for each trade or business by the individual or RPE that directly conducts the trade or business before applying the aggregation rules Three step process for determining the W-2 wages paid with respect to a trade or business that are properly allocable to QBI: Each individual or RPE must determine its total W-2 wages paid for the taxable year under the rules in paragraph (b)(2) of this section; Each individual or RPE must allocate its W-2 wages between or among one or more trades or businesses under the rules in paragraph (b)(3) of this section Each individual or RPE must determine the amount of such wages with respect to each trade or business that are allocable to the QBI of the trade or business Wages payed by a related party to the common law employer are included in W-2 wages Allows for a common paymaster Common paymaster cannot also include those wages Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Prop. Reg. §1.199A-2 Wages What if a trade or business is acquired or sold during the year? The W-2 wages of the individual or entity for the calendar year of the acquisition or disposition are allocated between each individual or entity based on the period during which the employees of the acquired or disposed of trade or business were employed by the individual or entity, regardless of which permissible method is used for reporting predecessor and successor wages on Form W-2 W-2 wages for a short tax year include only the wages paid to and elective deferrals made by employees during the short tax year, plus compensation actually deferred during the short tax year These rules also apply to a short tax year that does not include a December 31; for example, a tax year that begins on September 1 and ends on November 30 Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Qualified Property Limitation Generally
What is qualified property? Tangible property used in a qualified trade/business being depreciated Original cost basis of the property unadjusted for depreciation, section 179 expense, or certain step-up basis in partnerships What is not-qualified property? Land Property disposed of in current year Recapture may count Depreciable property beyond later of depreciable life or years from placed-in-service date 10-year rule relevant for assets with100 percent bonus depreciation Qualified property is the taxpayer’s share of depreciable tangible property used in the business. To be considered qualified property, it must still be available for the business to use at year-end. Additionally, the depreciable period, which is the later of 10 years from the date placed in service or the asset’s depreciable life must not have ended before year-end. To illustrate this point, if a building was placed in service in 1970, it would not be considered qualified property because it’s beyond the depreciable period of 39 years. Of course, there will be many questions that come up in regards to qualified property, and we will need additional guidance for answers.

Prop. Reg. §1.199A-2 UBIA of Qualified Property
Improvements – In the case of any addition to, or improvement of, qualified property that has already been placed in service by the individual or RPE, such addition or improvement is treated as separate qualified property first placed in service on the date such addition or improvement is placed in service What if a 754 election is made? Basis adjustments under sections 734(b) and 743(b) are not treated as qualified property Special rule for property acquired at the end of the year “Property is not qualified property if the property is acquired within 60 days of the end of the taxable year and disposed of within 120 days without having been used in a trade or business for at least 45 days prior to disposition, unless the taxpayer demonstrates that the principal purpose of the acquisition and disposition was a purpose other than increasing the section 199A deduction.” Carryover basis for property acquired in a 1031 transaction Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Prop. Reg. §1.199A-2 UBIA of Qualified Property
Unadjusted Basis Immediately After Acquisition Look to date the property is placed in service Basis isn’t adjusted for depreciation allowed under IRC sec. 1016(a)(2) or (3) (exhaustion, wear and tear, obsolescence, amortization, and depletion), any adjustments for tax credits, or any portion of basis the taxpayer has elected to expense (i.e., 179 expensing Property contributed to a partnership or S corporation and immediately placed in service gets carryover basis Same applies for property acquired by gift If property is not completely used in the trade or business, then the basis is prorated. Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Qualified Business Income - Generally
What is QBI? Ordinary income less ordinary deductions earned from a sole proprietorship, S-corporation, or partnership What is not QBI? Investment income Capital gain from the sale of business assets Wages or guaranteed payments received from the business Foreign source income In general, taxpayers will be allowed a deduction that’s equal to the lesser of 20% of their taxable income in excess of their net capital gain or their combined business income. You may have noticed that we have to subtract net capital gains from our taxable income. The reasoning is that we’re already getting a reduced tax rate for that capital gain, so we shouldn’t get an additional deduction for it. Combined business income is generally the sum of 20% of qualified business income subject to a couple limitations that I’ll discuss in a moment. It is important to note that the qualified business income, subject to limitations, must be calculated for each business. This means that if you invest in multiple pass-through entities, this provision can make preparing your tax returns more time consuming. So, what is Qualified Business Income or QBI? Basically, QBI is just your ordinary income and deductions from pass-through entities and sole proprietorships, such as Sch C and Sch E activities. Investment income is not included in the definition, and any wages or guaranteed payments you receive from pass-through businesses are also not included in QBI.

Prop. Reg. §1.199A-3 QBI, qualified REIT dividends, qualified PTP income
Treas. Reg. §199A-3(b) defines QBI as the net amount of qualified items of income, gain, deduction, and loss with respect to any trade or business of the taxpayer. Must be effectively connected with the conduct of a trade or business within the United States, and included or allowed in determining taxable income for the taxable year As noted on Slide 14 Trade or business means a section 162 trade or business other than the trade or business of performing services as an employee. In addition, rental or licensing of tangible or intangible property (rental activity) that does not rise to the level of a section 162 trade or business is nevertheless treated as a trade or business for purposes of section 199A, if the property is rented or licensed to a trade or business which is commonly controlled with lessor or licensor. Facts and circumstances Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Treas. Reg. §199A-3(b) – items included in determining QBI: Gain from disposition of hot assets (IRC §751) Hot assets includes IRC §1245 recapture While §1245 isn’t specifically mentioned in the code or regs, we can assume that §1245 recapture is included in QBI The deduction for a guaranteed payment Section 481 adjustments (positive or negative) Previously disallowed losses Losses generated prior to January 1, 2018 not taken into account Net operating losses that fall under IRC §461(l) IRC §461(l) is a new statute that governs noncorporate NOLs Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Treas. Reg. §199A-3(b) – items not included in determining QBI: Capital gains/losses including IRC §1231 gains/losses characterized as capital gain/loss Dividends Interest income not generated through an active trade or business Working capital is not included in determining QBI Income from notional principal contracts (for example, swaps) Annuity income (unless it is associated with trade or business) Qualified REIT dividends and Qualified PTP income Both defined in the regulations Reasonable compensation paid by S corporation to a shareholder The deduction for comp does reduce QBI Guaranteed payments or any amount received by partner for services rendered Deduction will reduce QBI Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

If the RPE conducts multiple trades or businesses which generate QBI, the RPE must allocate those items among the businesses using a reasonable method based on the facts and circumstances Can use a different method for different types income, gain, deduction or loss The method used must be used for following tax years Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Prop. Reg. §1.199A-4 Aggregation
The proposed regulations provide a mechanism to aggregate businesses, if certain tests are met Who should consider this? Taxpayers who carry on multiple, related trades or businesses that would otherwise be limited if viewed independently Specified service trades or businesses are prohibited from aggregation Partnerships and S-corporations may not aggregate at the entity level Consistent aggregation is required in subsequent years Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations Individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements are satisfied If the requirements are met, aggregation is permitted but not required Be careful before making the election to aggregate A taxpayer should look at the basis of the properties in each entity before electing Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Requirements for aggregation – The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years Definition of wage: Includes all wages as defined in section 3401(a) Plus the total amount of elective deferrals (section 402(g)(3)) Includes compensation deferred under section 457 Also include the amount of designated Roth contributions The wages must be reported on a return filed with the SSA. Wages paid by a party related to the common law emloyer are included Generally each entity treated as separate for W-2 wage limit. Can aggregate if certain requirements are met Under the regulations, each trade or business is generally treated as a separate trade or business for purposes of applying the W-2 wage and UBIA limitations. However, individuals can aggregate trades or businesses and treat the aggregate as a single trade or business for purposes of applying the limitations, if and only if the requirements in Reg. Section1.199A-4 are satisfied. If the requirements are met, aggregation is permitted but not required. Be careful before making the election to aggregate. A taxpayer should look at the basis of the properties in each entity before electing. Election to aggregate is allowed only if an individual can demonstrate: Each trade or business is a trade or business itself The same person or group of persons owns, directly or indirectly, 50% or more of each trade or business For S-Corps – 50% or more of the issued and outstanding shares For Partnerships – 50% or more of the capital or profits in the partnership The ownership must be held for the majority of the taxable year in which the items attributable to each trade or business are included in income All the items for each trade or business are reported on returns with the same taxable year, not taking into account short taxable years None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group Regarding trade or business, the question has arisen whether a entity with real estate subject to a triple net lease is a trade or business. #6 is a facts and circumstances test For 6(A) think a restaurant and a food truck or a gas station and a car wash. For 6(B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For 6(C) think for example of supply chain interdepencies There are several operating rules that the taxpayer must be aware of before aggregating. Family attribution rules apply Reporting and consistency requirements Must consistently aggregate in all subsequent years May add new create/acquired entities If facts or circumstances change so that the businesses can no longer be aggregated A new aggregation can be made if it meets all the requirements Must attach a statement each taxable year

Requirements for aggregation (con’t) – None of the trades or business are specified service trades or business The trades or businesses satisfy at least two of the following factors: The trades or businesses provide products and services that are the same or customarily offered together The trades or business share facilities or share significant centralized business elements The businesses are operated in coordination with, or reliance on, other business in the aggregated group

Must be a trade or business to aggregate What if an entity owns real estate subject to a triple net lease? Regarding the 5th requirement in the previous slide – Facts and circumstances test For (A) think a restaurant and a food truck or a gas station and a car wash For (B) think of sharing personnel, accounting, legal, manufacturing, purchasing, human resources or information technology services For (C) think for example of supply chain interdependencies

Operating rules individual can aggregate trades or businesses operated directly. An individual can also aggregate the individual’s share of QBI, W-2 wages, and UBIA from trades or businesses operated through RPEs Different owners of an RPE don’t have to aggregate in the same manner If a business is operated by an individual directly, the individual computes QBI, W-2 wages, and UBIA of qualified property for each trade or business before applying the aggregation rules If an individual aggregates multiple trades or businesses, the individual must combine the QBI, W-2 wages, and UBIA of qualified property for all aggregated trades or businesses for applying the W-2 wage and UBIA limitations

For purposes of the ownership requirement, family attribution rules apply Reporting and consistency requirements Once aggregated, must remain in subsequent years May add new businesses as they are created/acquired Once the aggregation rules no longer apply due to a change in facts, the businesses can no longer be aggregated Can make a new aggregation at a later date if the requirements are met

Disclosure requirements – For each year, individuals must attach a statement identifying the aggregated businesses The statement must contain the following A description of each business The name and EIN of each entity Information regarding any business that was formed, ceased operations, was acquired, or was disposed of during the taxable year Any other information required by the Secretary (expect a form at some point) No disclosure then IRS can disaggregate

20 Percent QBI Deduction: Specified Service Trade or Business
Performs services in the fields of health, law, accounting, consulting, performing artists, athletics, financial services, brokerage services, or any trade or business where the “principal asset is the reputation or skill of one or more of its employees/owners” Architecture/engineering services specifically excluded Limitations apply after $315,000 MFJ ($157,500 S) At $415,000 MFJ ($207,500 S), no 20 percent QBI deduction regardless of W-2 wages or property basis Exceptions available for de minimis specified services “Crack and Pack” strategy blocked by recent regulation When we refer to service businesses, what does that actually mean? Essentially a specified service business is any whose principal asset is the reputation or skill of one or more of its employees/owners. It’s important to note that architecture and engineering services are specifically excluded from the definition. There is a lot of ambiguity in this definition, so we will need more guidance when it comes to actually applying this definition to businesses. While it is easy to see that a doctor is included as a service business, what about a surgery center that is essentially a facility that just hosts medical procedures? When 199A was first passed many thought they could split up their businesses to avoid the SSTB rules New regs prevent this SSTB includes any trade or business that provides more than 80% of its property or services to an SSTB if there is more than 50% common ownership If less than 80% of property or services to SSTB but greater than 50% common ownership, that portion of the trade or business providing property as services to the owner is treated as SSTB Related party rules includes direct and indirect ownership Attribution rules apply as well Exception for de minimis specified services Trade/bus is not an SSTB if either: Gross receipts of $25 million or less for the taxable year and less than 10% of gross receipts of the trade/busienss are attributable to the performance of specified services Gross receipts greater than $25 million for the taxable year and less than 5% of gross receipts of the trade/business are attributable to the performance of specified services Service/property provided to commonly controlled SSTB – Special rules See PWC CPE (slide 22)

20 Percent QBI Deduction: Wage and Property Limitations
Non-Specified Service Business Specified Service Trade or Business Taxable income under $315,000 MFJ (157,500 S) 20% deduction No limitations applied Taxable income $315, ,000 MFJ Wage and property limitations phased-in Deduction phased-out Taxable income over $415,000 MFJ (205,500 S) Wage and property limitations applied No deduction Now that you know what QBI is, let’s find out if you’ll be subject to the two limitations, which are the wage & property limitation and service business limitation. When I discuss this, I’m just going to use the MFJ thresholds. The thresholds for everyone else will be half of the MFJ numbers. Based on a MFJ taxpayer, if taxable income is less than $315,000, the taxpayer has the green light and the deduction is not subject to any limitations. That means that their QBI deduction for the business is simply 20% of its QBI. The two limitations are phased-in over a range of $100,000 beyond the $315,000 if MFJ. This means that if the taxpayer’s income is greater than or equal to $415,000, both limitations will be fully phased-in. But what does that mean? For non-service businesses, this means that their QBI deduction will ultimately be limited to the greater of 50% of W-2 wages or 25% of the W-2 wages plus 2.5% of the unadjusted basis of qualified property. And for pass-through businesses, the taxpayer only uses their share of the wages and property. For service businesses, being fully phased-in to the limitations means that they get a red light and get no §199A deduction at all. For taxpayers with taxable income between $315,000 and $415,000, both service and non-service businesses will get a deduction, but it may be limited. Wage and property limitation – deduction limited to the greater of: 50 percent of W-2 wages (including the employee and owners wages) 25 percent of W-2 wages plus 2.5 percent of unadjusted basis in qualified assets

Prop. Reg. §1.199A-5 SSTB Related businesses
The portion of a trade or business that provides property or services to a related SSTB is treated as part of the SSTB. If that portion is 80 percent or more of the property or services of the trade or business, the entire trade or business is treated as part of the SSTB Businesses are related if they have 50 percent or more common ownership. This ownership test includes direct or indirect ownership under IRC §§267(b) or 707(b) This does away with the “crack and pack” strategy

Prop. Reg. §1.199A-5 SSTB Incidental Services
A non-SSTB trade or business that is incidental to an SSTB is treated as part of that SSTB if: the non-SSTB and the SSTB have 50 percent or more common ownership, including related parties; the non-SSTB and the SSTB share expenses, including wage or overhead expenses; and non-SSTB’s gross receipts are no more than five percent of the total combined gross receipts of the non-SSTB and the SSTB for the tax year

Prop. Reg. §1.199A-5 SSTB De minimis exception
A service business is not a SSTB if less than 10 percent of its gross receipts for the tax year are attributable to the performance of a SSTB This 10-percent threshold drops to five percent if the business has gross receipts of $25 million or less Employees The trade or business of performing services as an employee is not a trade or business for purposes of the deduction Employment income is all wages and other income earned in a capacity as an employee includes reportable compensation payments, such as the cash value of non-cash payments that an employer makes to an employee in the course of the employer’s trade or business it does not include compensation for statutory non-employees or retirement plan distributions

Prop. Reg. §1.199A-5 SSTB Health
The performance of services in the field of health means the provision of medical services by individuals such as physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists and other similar healthcare professionals performing services in their capacity as such who provide medical services directly to a patient (service recipient). Its does not include the provision of services not directly related to a medical services field, even though the services provided may purportedly relate to the health of the service recipient, such as: the operation of health clubs or health spas that provide physical exercise or conditioning to their customers, payment processing, or the research, testing, and manufacture and/or sales of pharmaceuticals or medical devices What about surgical/ambulatory centers where doctors are not on payroll and no hourly fee for nurses?

Prop. Reg. §1.199A-5 SSTB Law Accounting
The performance of services in the field of law means the performance of services by individuals such as lawyers, paralegals, legal arbitrators, mediators, and similar professionals performing services in their capacity as such. It does not include the provision of services that do not require skills unique to the field of law, such as the provision of services by printers, delivery services, or stenography services Accounting The performance of services in the field of accounting means the provision of services by individuals such as accountants, enrolled agents, return preparers, financial auditors, and similar professionals performing services in their capacity as such

Prop. Reg. §1.199A-5 SSTB Actuarial Science Performing Arts
The performance of services in the field of actuarial science means the provision of services by individuals such as actuaries and similar professionals performing services in their capacity as such The preamble provides the field of actuarial science does not include the provision of services by analysts, economists, mathematicians, and statisticians who not engaged in analyzing or assessing the financial costs of risk or uncertainty of events Performing Arts The performance of services in the field of the performing arts means the performance of services by individuals who participate in the creation of performing arts, such as actors, singers, musicians, entertainers, directors, and similar professionals performing services in their capacity as such. It does not include the provision of services that do not require skills unique to the creation of performing arts, such as the maintenance and operation of equipment or facilities for use in the performing arts; or the provision of services by persons who broadcast or otherwise disseminate video or audio of performing arts to the public

Prop. Reg. §1.199A-5 SSTB Consulting
The performance of services in the field of consulting means the provision of professional advice and counsel to clients to help them achieve goals and solve problems. It includes providing advice and counsel regarding advocacy with the intention of influencing decisions made by a government or governmental agency and all attempts to influence legislators and other government officials on behalf of a client by lobbyists and other similar professionals performing services in their capacity as such. It does not include: the performance of consulting services embedded in, or ancillary to, the sale of goods or performance of services on behalf of a trade or business that is otherwise not an SSTB, such as typical services provided by a building contractor, if there is no separate payment for the consulting services; or the performance of services other than advice and counsel, such as sales or economically similar services or the provision of training and educational courses. The determination of whether a person's services are sales or economically similar services is based on all the facts and circumstances of that person's business, including for example, the manner in which the person is compensated for the services provided

Prop. Reg. §1.199A-5 SSTB Athletics
The performance of services in the field of athletics means the performance of services by individuals who participate in athletic competition such as athletes, coaches, and team managers in sports like baseball, basketball, football, soccer, hockey, martial arts, boxing, bowling, tennis, golf, skiing, snowboarding, track and field, billiards, and racing. The performance of services in the field of athletics does not include the provision of services: that do not require skills unique to athletic competition, such as the maintenance and operation of equipment or facilities for use in athletic events; or by persons who broadcast or otherwise disseminate video or audio of athletic events to the public

Prop. Reg. §1.199A-5 SSTB Financial Services
The performance of services in the field of financial services means the provision of financial services to clients including managing wealth, advising clients with respect to finances, developing retirement plans, developing wealth transition plans, the provision of advisory and other similar services regarding valuations, mergers, acquisitions, dispositions, restructurings (including in title 11 or similar cases), and raising financial capital by underwriting, or acting as a client's agent in the issuance of securities and similar services. This includes services provided by financial advisors, investment bankers, wealth planners, and retirement advisors and other similar professionals performing services in their capacity as such Financial services do not include banking, such as taking deposits and making loans So S corporation S&L may be eligible

Prop. Reg. §1.199A-5 SSTB Brokerage Services
The performance of services in the field of brokerage services includes services in which a person arranges transactions between a buyer and a seller with respect to securities for a commission or fee. This includes services provided by stock brokers and other similar professionals, but it does not include services provided by real estate agents and brokers, or insurance agents and brokers

Prop. Reg. §1.199A-5 SSTB Investing and Investment Services
The performance of services that consist of investing and investment management refers to a trade or business involving the receipt of fees for providing investing, asset management, or investment management services, including providing advice with respect to buying and selling investments. It does not include directly managing real property An investing and investment management SSTB includes a trade or business that receives either a commission, a flat fee, or an investment management fee calculated as a percentage of assets under management The performance of services of investing and investment management does not include directly managing real property

Prop. Reg. §1.199A-5 SSTB Trading
The performance of services that consist of trading means a trade or business of trading in securities and commodities, or partnership interests. Whether a person is a trader in securities, commodities, or partnership interests is determined by taking into account all relevant facts and circumstances, including the source and type of profit that is associated with engaging in the activity regardless of whether that person trades for the person's own account, for the account of others, or any combination thereof. Taxpayers like manufacturers and farmers who engages in hedging transactions as part of their trade or business of manufacturing or farming are not considered to be engaged in the trade or business of trading commodities

Prop. Reg. §1.199A-5 SSTB Dealing
The performance of services that consist of dealing in securities means regularly purchasing securities from and selling securities to customers in the ordinary course of a trade or business; or regularly offering to enter into, assume, offset, assign, or otherwise terminate positions in securities with customers in the ordinary course of a trade or business. However, a taxpayer that regularly originates loans in the ordinary course of a trade or business of making loans but engages in no more than negligible sales of the loans is not dealing in securities The performance of services that consist of dealing in commodities means regularly purchasing commodities from and selling commodities to customers in the ordinary course of a trade or business; or regularly offering to enter into, assume, offset, assign, or otherwise terminate positions in commodities with customers in the ordinary course of a trade or business

Prop. Reg. §1.199A-5 SSTB Reputation and skill of employee/owner
A trade or business whose principal asset is the reputation or skill of one or more of its employees or owners means any trade or business that consists of any of the following, alone or in combination: a trade or business in which a person receives fees, compensation, or other income for endorsing products or services; a trade or business in which a person licenses or receives fees, compensation or other income for the use of an individual's image, likeness, name, signature, voice, trademark, or any other symbols associated with the individual's identity; or receiving fees, compensation, or other income for appearing at an event or on radio, television, or another media format. This includes fees or income to reality performers performing as themselves on television, social media, or other forums, radio, television, and other media hosts, and video game players Fees, compensation, or other income includes the receipt of a partnership interest and the corresponding distributive share of income, deduction, gain or loss from the partnership; or the receipt of stock of an S corporation and the corresponding income, deduction, gain or loss from the S corporation stock

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