Tax Insights

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Section 199A: How do we plan for this?

Section 199A, QBI, tax reform, pass through deductionWe are always looking for bigger, better ways to save when it comes to paying taxes, right? Section 199A is proving it may be just that. BUT what exactly is Section 199A and how do we plan for it when there are still so many unanswered questions?

Section 199A is also known as the Qualified Business Income (QBI) Deduction. It allows individuals, estates and trusts to deduct up to 20% of QBI. The net effect is that any QBI will be taxed at a much lower rate.

There are many issues to consider when deciding if you qualify. Some general considerations are:

  1. Do you have income from a sole proprietorship or pass-through entity?
  2. Is the business a qualified business under IRC Sec 199A?
  3. Does the income from your business qualify as QBI?
  4. Are you an owner of a qualified REIT or a qualified Publicly Traded Partnership?

Section 199A: Calculating the QBI deduction

Section 199A has a handful of exceptions and has raised many concerns with tax professionals. You know that thing called a loophole? Well, the IRS issued proposed regulations to help clarify their stance on certain ambiguities, but in all honesty, it did not address them all.

In short, if you think you may qualify for this deduction, it is not something to try to tackle on your own (unless you are trained in interpreting tax law). Please discuss the Section 199A deduction with your Henry+Horne tax professional, as there are many planning opportunities and traps to avoid. We would love to assist you with both.

Becky Barnett, EA