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INSIDE Would You Invest 3 Minutes of Your Time to Find Out …? Page 1 Borbala’s Schedule Page 2 Clients of the Month: Erika & Zsolt Molnar Page 2 She Did It! Page 3 Try This Recipe for Father’s Day! Page 3 Are You Eligible for the New Deduction Created by the Recent Tax Act? Page 4
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ARE YOU ELIGIBLE FOR THE NEW DEDUCTION CREATED BY THE RECENT TAX ACT?
The recent Tax Act creates a new deduction on pass-through income. It should provide a substantial tax benefit to individuals with “qualified business income” from a partnership, S-corporation, LLC, or sole proprietorship. It is also one of the more complicated provisions in the new law. The deduction is 20 percent of your “qualified business income (QBI).” Employee wages do not qualify, and neither do reasonable compensation received from an S-corporation or a guaranteed payment received from a partnership. If your taxable income is below $157,500 ($315,000 for joint filers), you can be in any type of business and you’re eligible for the deduction.
If your taxable income is above this level and you are in a “specified service” trade, your deduction is phased out. We’re talking about trades involving the performance of services in the fields of health, law, consulting, athletics, or financial services. Once taxable income is above $207,500 ($415,000 for joint filers), NO deduction is allowed for income from specified service businesses. For the rest of the taxpayers with taxable income more than the above thresholds, a limitation on the amount of the deduction is phased in based on either on wages paid or wages paid plus a capital element. Calculating QBI will be the most complicated in these cases.
Obviously, the complexities surrounding this substantial new deduction can be formidable, especially if you are in a specified service business or if your taxable income exceeds the thresholds discussed above. Please reach out to Borbala and Laz with any questions regarding how the new deduction might benefit you.
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