Can I claim the new 20% qualified business income deduction on my tax return?
The new tax reform law allows owners of S corporations, partnerships, LLC’s, sole proprietorships and farms a new 20% deduction against their qualified business income, subject to a number of limitations
TAX RATES. Tax rates are reduced. The top rate is reduced from 39.6% to 37%. Lower rates are also reduced.
Beginning in 2018, individual taxpayers may deduct up to 20% of domestic qualified business income from your S corporation, partnership, LLC, sole proprietorship or farm. In some situation, net rental income may qualify for some or all of the 20% deduction. Limitations apply based on wages paid or if the qualified business income is from a specified service business (like law, accounting, medical, etc)
QUALIFIED BUSINESS INCOME. Qualified business income is the net income of your Schedule C, S corporation, partnership, LLC, sole proprietor, partnership, farm and rental property. These are often referred to as “pass-through income,” only meaning that the income from these various businesses structures is reported on your individual tax return. Capital gains from the sale of a business asset is no included. Interest and dividend income on business accounts is not included. If you have a sole proprietorship that makes money and an LLC that loses money, the two are netted on your individual return in calculating the 20% deduction. I these two businesses are a net loss, the loss carries over to the next year and reduces qualified business income in that year.
TAXABLE INCOME THRESHOLD. The wage and specified personal service business limitations do not apply if your Form 1040 table income is less than $157,500 ($315,000 for a married filing joint couple) The deduction phases out for taxable income between $157,500 and $207,500 (between $315,000 and $415,000 for a married filing joint couple).