The Internal Revenue Service issued proposed regulations today for a new
provision allowing many owners of sole proprietorships, partnerships, trusts and S corporations to
deduct 20 percent of their qualified business income.
The new deduction — referred to as the Section 199A deduction or the deduction for qualified
business income — was created by the Tax Cuts and Jobs Act. The deduction is available for tax
years beginning after Dec. 31, 2017. Eligible taxpayers can claim it for the first time on the 2018
federal income tax return they file next year.
The deduction is generally available to eligible taxpayers whose 2018 taxable incomes fall below
$315,000 for joint returns and $157,500 for other taxpayers. It’s generally equal to the lesser of 20
percent of their qualified business income plus 20 percent of their qualified real estate investment
trust dividends and qualified publicly traded partnership income or 20 percent of taxable income
minus net capital gains.
Deductions for taxpayers above the $157,500/$315,000 taxable income thresholds may be limited.
Those limitations are fully described in the proposed regulations.
Qualified business income includes domestic income from a trade or business. Employee wages,
capital gain, interest and dividend income are excluded.
