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Maximizing the IRC § 199A Deduction

Maximizing the IRC § 199A Deduction

Taxpayers who qualify for the IRC § 199A deduction (the "Deduction") will be one of the big winners under the Tax Cuts and Jobs Act (the "2017 Tax Act").

IRC § 199A provides for a deduction equal to 20% of a taxpayer's qualified business income (subject to the adjustments and limitations discussed below). But for many taxpayers, maximizing the Deduction will require careful planning.

Click here to view this article in its entirety, and to learn more about:

  • Who can take advantage of IRC § 199A?
  • The mechanics of the Deduction
    • The Deduction is based on a taxpayer's "qualified business income."
    • Is Section 1231 gain qualified business income?
    • What's excluded from qualified business income?
    • Calculation of the Deduction.
    • How a taxpayer's taxable income affects the Deduction.
    • Limitations on the Deduction for a "specified service trade or business."
    • The Deduction won't affect a taxpayer's amount of self-employment income or state income taxes.
    • Carryover of qualified business income losses.
    • The effect of the Deduction on the tax basis of a partner or S corporation shareholder.
    • The alternative minimum tax won't reduce amount of the Deduction and the Deduction applies when calculating the AMT. 
  • IRC § 199A planning pointers
    • The Deduction sunsets.
    • How the calculation of the Deduction on a business-by-business basis can affect planning.
    • Wage compensation planning issues.
    • Deduction planning for professional/service businesses.
    • Deduction planning with partnership guaranteed payments.
    • The Deduction marriage penalty.
    • Dealing with the taxable income thresholds.
    • Dealing with Section 1231 property.
  • IRC § 199A examples

Attorneys at Frost Brown Todd have developed substantial experience assisting closely-held business clients with their entity tax planning and governance issues, and in particular founders organizing LLCs and S corporations. Contact Scott Dolson or any other member of the Tax Law Practice Group if you need assistance or would like additional information.

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Attorney Spotlight

Scott W. Dolson is a member of FBT, providing corporate, tax and M&A services to LLCs, corporations and partnerships. This includes tax planning for the formation of closely held businesses, LLCs and FLPs and the structuring of syndicated private offerings.