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What Entities Qualify For The New Section 199A Business Write-off?



In 2018, a new tax write-off has been created for qualifying businesses – the Section 199A Business Deduction.

This deduction equates to 20% of Qualified Business Income assuming you meet income and salary limitations.  Also, shareholder reasonable compensation, interest, dividends and capital gains and losses don’t qualify. But if you meet these requirements, exactly what entities and businesses have Qualified Business Income?  Based on my research, here are the qualifying businesses:

1. Sole Proprietorships – Schedule Cs.

2. Individual Owners of Rental Properties – Schedule Es.

3. S-Corporations (net of reasonable compensation to shareholders.)

4. Partnerships and LLCs (on form 1065.)

5. Trusts having business income or Rental Property income.

6. S-Corporations, Partnerships and Trusts owning any of the above pass-through entities (future regulations will give guidance on how to determine the deduction in case of tiered entities.)

Basically, any non-C-Corporation will probably qualify for the Section 199A deduction.  It is interesting that rental property income will qualify for this tax benefit.

What it means is that with proper planning, the new deduction can significantly benefit many types of small businesses going forward.

Have questions? Contact Brian Stoner.

 

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