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The First Step to Understanding the New QBI Deduction of the TCJA

Mark J. Smith, CFP®, CPA/PFS, CIMA®
September 6, 2018

Nelson Mandela once said, “Remember to celebrate milestones as you prepare for the road ahead.” We all know that owning your own business can be rewarding and prosperous from a personal and career perspective, but it also comes with its own set of challenges.

The recently passed Tax Cuts and Jobs Act (TCJA) brings many benefits to owners, but it is also a complex bill to navigate through. As part of the changes, Congress created a new section of the tax code, IRC Section 199A, which allows for a new 199A deduction, also known as the qualified business income (QBI) deduction. This provides business owners a 20% deduction on “qualified business income” that have “pass-through business entities” (which is really any business entity that is not a C corporation), and includes S corporations, limited liability companies and partnerships, and sole proprietorships.

This new deduction is great news and is a huge tax break for many business owners. However, it is also an extremely complicated deduction to understand – with little direction from the government so far.

First, in order to capitalize on this new tax code, business owners must understand and identify which type of business category they are – including S corp., LLC, sole proprietorship, etc.  Based on this identification, given how the QBI rules are written, business owners will generally fall into three categories when utilizing various strategies for deductions.  

A recent article outlines this well, giving a high level overview of what these categories are when it comes to maximizing a business owner’s opportunity for QBI deductions.  

If you’d like to learn more about TCJA, we invite you to watch a live recording of a seminar our office held this summer that shares a comprehensive overview. If you'd like to learn about the deductions that may help you and your business, and long-term financial wealth planning for your unique situation, please contact us today and we’d be happy to set up a free consultation.

The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.This information does not purport to be a complete description of the developments referred to in this material. Links are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members. While we are familiar with the tax provisions of the issues presented at this seminar, as Financial Advisors of RJFS, we are not qualified to render advice on tax matters. You should discuss tax matters with the appropriate professional.

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