§199A Pass-Through Deduction: How to Turn High Taxed Tears to Joy

Author: Bradley Burnett

The Qualified Business Income Deduction under the Tax Cuts and Jobs Act
The all-new §199A pass-through deduction cuts non-C Corp income tax rates to the lowest in 3 decades, but only for those eligible. Some higher (and lower) income taxpayers are aced out or trimmed back. Join experienced practitioner and instructor Bradley Burnett to learn how to make the most of the new 20% pass-through deduction. This is a complex new development with many unanswered questions as well as a need to make careful calculations to ensure your clients are getting the best possible tax position for income from passthrough entities.

Publication Date: November 2018

Designed For
EAs, CPAs, and tax professionals who advise passthrough entities on tax issues and who file returns for passthrough entities and their owners and members.

Topics Covered

• Tax Cuts and Jobs Act
• TCJA— Comparing Top Income Tax Rates
• C Corp vs. Non‐C Corp
• §199A Proposed Regulations
• Pass‐Through Deduction (QBID)
• QBI Deduction Applies to Non‐C Corps
• QBID— Individuals, Estates & Trusts Qualify
• QBI Deduction Does Not Affect AGI
• QBI Deduction Below the Line
• QBID Only Reduces Income Tax Effective Rate
• TCJA ‐ §199A Pass‐Through Deduction/Centralized Partnership Audit Rules
• §6662 Accuracy Penalty
• Lower §6662 Accuracy Penalty Threshold
• QBID Makes Non‐C Corp Tax Rates Crazy Low
• Qualified Business Income Effective Rates
• Limits (Caps) May Reduce QBI Deduction
• Tentative QBI Deduction
• QBI = Business Profit After Owner's Comp
• Loss Limitation— Hurdles
• TCJA— Non‐C Corp Excess Business Losses
• TCJA— Net Operating Loss Rules
• Cost Recovery and Timing Issues
• QBI Deduction Computation
• Tentative QBID = 20% of QBI
• 1st Limit (Cap) on QBID = 20% x Ordinary TI
• 1st Limit (Cap) on QBID = 20% x OITI
• Last 2 Limits Reduce QBID Only if TI High
• Phase Out of QBID if TI Exceeds Threshold*
• 2nd Limit on QBID = SSTB (If Income Too High)
• Specified Service Trade or Business (SSTB)
• SSTB — Crack and Pack Strategy
• SSTB — A Cracking Permission Rule?
• Pass‐Through Entity Must Report SSTB Status
• SSTB — De Minimis Rule
• Wage Limit
• Wage or Wage/Property Limit
• Do Both SSTB and Wage, Wage/Property Limits Apply Within Phase Out Range?
• Effect of Business Losses on QBID
• Effect of Carryover QB Loss on QBID
• QBID and Rental Real Estate
• Is Rental Real Estate a Business?
• Is Rental Real Estate a Business? Where It Gets Foggy
• §199A and Aggregation
• §199A Planning with QBI and Deductions
• QBID — Which Side of the Fence? A New Thinking Process

Learning Objectives

• Identify cutting edge tax planning opportunities and pitfalls under the Tax Cuts Jobs Act for the §199A deduction available to partnerships, S Corps, sole proprietorships, trusts and estates
• Explain the QBID to owners of S corps and LLCs as well as partnership members, sole proprietors and trust and estate administrators
• Identify the new top rate with respect to pass-through income
• Differentiate organizations which are ineligible to take advantage of QBID
• Describe items affected by the QBI deduction
• Recognize what is reduced by the QBI deduction
• Identify which types of income are included in QBI
• Describe which categories are included within the specified service trade or business requirement with respect to the limit on QBID
• Recognize which type of wage is included in the overall wage limit assessment
• Identify correct statements with respect to the considerations around rental real estate as a business
• Recognize what is required to be reported regarding each aggregated business, with respect to aggregation
• Describe correct statements regarding Section 199A and trusts
• Identify the top income tax rate related to adjusted net long-term capital gains
• Differentiate the reasons why an S Corporation is generally better than a C Corporation
• Identify one of the five loss limitation hurdles
• Identify the beginning phase-out range for an SSTB when the taxpayer is a single filer
• Recognize which types of wages are subject to wage withholding and elective deferrals by employees during calendar year ending within tax year
• Describe the property limit
• Identify characteristics of prior year carryover business losses as it relates to the impact on the QBID

Level
Update

Instructional Method
Self-Study

NASBA Field of Study
Taxes (4 hours)

Program Prerequisites
A basic understanding of TCJA.

Advance Preparation
None