1. IRC 199A Overview: Qualified Business Income Deduction
Richard Furlong, Jr.
Senior Stakeholder Liaison
October 26, 2018
Main Line Association for Continuing Education

2. What is the Deduction?
In general, the deduction may be up to 20% of the taxpayer’s qualified business income
Taxpayers may claim the deduction in addition to the standard or itemized deduction
There are limitations

3. Qualified Business Income
QBI means, for any taxable year, the net amount of qualified items of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer

4. Who is Eligible?
All taxpayers, except C corporations, with QBI from a qualified trade or business may take this deduction

5. Qualified Trade or Business
Qualified trade or business is any U.S. trade or business, with two exceptions:
specified service trade or business, and
the trade or business of being an employee

6. Specified Service Trade or Business
Any trade or business involving the performance of services in the fields of:
or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners.
health,
law,
accounting,
actuarial science,
performing arts,
consulting,
athletics,
financial services,

7. Specified Service Trade or Business (cont’d)
A specified service trade or business is also any trade or business:
Which involves the performance of services that consist of investing and investment management, trading, or dealing in securities, partnership interests, or commodities.

8. Phase – In Amounts Taxable Income Threshold:
$157,500 ($315,000 married filing joint)
Limit:
$207,500 ($415,000 married filing joint)

9. Special Rules for Specified Service Trade or Business
The specified service exclusion does not apply to taxpayers whose taxable income is less than the threshold
The deduction is reduced for taxpayers whose taxable income is between $157,500 and $207,500 ($315,000 and $415,000 MFJ).
Income from a specified service trade or business is not income from a qualified trade or business for taxpayers with taxable income above $207,500 ($415,000 MFJ).

10. Computation
If taxable income is below threshold regardless of the type of qualified trade or business, deduction is the lesser of:
20% of qualified trade or business income, plus 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income, or
20% of the excess of taxable income over net capital gain

11. Limitations are phased in
Computation (cont’d)
For taxpayers with taxable income above threshold the amount determined for QBI is limited to the greater of:
50% of wages from the qualified trade or business, or
25% of wages plus 2.5% of the unadjusted basis of qualified property (UBIA) from the qualified trade or business
Limitations are phased in

12. Example: Taxable Income Limitation
Rob is single, sole proprietor operating a restaurant. In 2018 he had the following:
Net Income: $100,000
Taxable income $25,000
QBI tentative deduction:
$5,000 ($25,000 x 20%)

13. Example: Schedule C Filer
Ruth is single, sole proprietor operating a retail store. In 2018 the store generated the following.
Net Income: $100,000
W-2 wages paid: $ 18,000
No qualified property
QBI tentative deduction:
$20,000 ($100,000 x 20%)

14. Example: Schedule C Filer, Specified Trade or Business
Enrico is single, sole proprietor accountant. In 2018 his business generated the following.
Net Income: $100,000
W-2 wages paid: $ 18,000
No qualified property
No net capital gains
QBI tentative deduction:
$20,000 ($100,000 x 20%)

15. Example: Income Limitation
B invested $10,000,000 in several parcels of land to be used as undeveloped parking lots leased to several suburban airports.
Rental Income $1,000,000
W-2 wages paid 0
Depreciable assets 0
QBI deduction: $0

16. Example: Income Limitation
B invested $10,000,000 in several parcels of land and spent $10,000,000 to build multistoried parking garages leased to several suburban airports.
Rental Income $4,000,000
W-2 wages paid 0
Depreciable assets $10,000,000 (UBIA)
QBI tentative deduction:
$250,000 ($10,000,000 x 2.5%)

17. Example: Income Limitation
C is a 30% owner of ABC, LLC, which is classified as a partnership for Federal income tax purposes. The LLC is not in a specified service trade or business.
The LLC generated the following:
Ordinary income $3,000,000
W-2 wages paid $1,000,000
UBIA $100,000

18. Example: Income Limitation (cont.)
Calculation of C’s QBI deduction:
Lesser of:
Tentative QBI ($900,000 x 20%) $180,000
Or,
Greater of
W-2 Wages ($300,000 x 50%) $150,000
Or sum of
W-2 Wages ($300,000 x 25%) $75,000
Unadjusted Basis ($30,000 x2.5%) $750
Wage and unadjusted base limitation is the greater of $150,000 or $75,750
C is entitled to a tentative deduction of $150,000

19. Example: Income Limitation
C is a 30% owner of ABC, LLC, which is classified as a partnership for Federal income tax purposes. The LLC is not in a specified service trade or business.
The LLC generated the following:
Ordinary income $3,000,000
W-2 wages paid $1,000,000
UBIA $20,000,000

20. Example: Income Limitation (cont.)
Calculation of C’s QBI deduction:
Lesser of:
Tentative QBI ($900,000 x 20%) $180,000
Or,
Greater of
W-2 Wages ($300,000 x 50%) $150,000
Or sum of
W-2 Wages ($300,000 x 25%) $75,000
Unadjusted Basis ($6,000,000 x2.5%) $150,000
Wage and unadjusted base limitation is the greater of $150,000 or $225,000
C is entitled to a tentative deduction of $180,000

21. Contact Information
Richard Furlong, Jr.
Senior Stakeholder Liaison