• info@kaizencpa.com
  • Our Office: USA - Hong Kong - Shenzhen - Shanghai - Beijing - Taiwan - Singapore - Japan - UK

+852 2341 1444(Hong Kong)
+86 755 8268 4483(Shenzhen)
+65 6438 0116(Singapore)

Search for anything.

Knowledge

  • Home
  • Knowledge
  • U.S. 199A Qualified Business Income Deduction Introduction

U.S. 199A Qualified Business Income Deduction Introduction

2023-09-12
Many individuals, including owners of businesses operated through sole proprietorships, partnerships, S corporations, trusts and estates may be eligible for a qualified business income deduction, also called the section 199A deduction, for years beginning after December 31.

The deduction allows them to deduct up to 20% of their qualified business income (QBI), plus 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. Income earned by a C corporation or by providing services as an employee is not eligible for the deduction.

The deduction has two components.

  1. QBI Component. This component of the deduction equals 20% of QBI from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust or estate. Depending on the taxpayer's taxable income, the QBI Component is subject to limitations including:

    (1) The type of trade or business,
    (2) The amount of W-2 wages paid by the qualified trade or business, and
    (3) The unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business.

    These limitations do not apply to taxpayers with taxable income at or below a certain threshold. For 2019, the threshold amount is $321,400 for a married couple filing a joint return, and $160,700 for all other taxpayers.

  2. REIT/PTP Component. This component of the deduction equals 20% of qualified REIT dividends and qualified PTP income. This component is not limited by W-2 wages or the UBIA of qualified property. Depending on the taxpayer's taxable income, the amount of PTP income that qualifies may be limited if the PTP is engaged in a specified service trade or business.

The overall deduction is limited to the lesser of the QBI component plus the REIT/PTP component or 20% of the taxable income minus net capital gain. The deduction is available regardless of whether an individual itemizes their deductions on Schedule A or takes the standard deduction.

QBI does not include any of the following:

  • Items not properly includible in income, such as losses or deductions disallowed under the basis, at-risk, passive loss, or excess business loss rules.
  • Investment items such as capital gains or losses, or dividends.
  • Interest income not properly allocable to a trade or business.
  • Wage income.
  • Income not effectively connected with the conduct of business within the U.S.
  • Commodities transactions or foreign currency gains or losses.
  • Income, loss, or deductions from notional principal contracts.
  • Annuities (unless received in connection with the trade or business).
  • Amounts received as reasonable compensation from an S corporation.
  • Amounts received as guaranteed payments from a partnership.
  • Payments received by a partner for services other than in a capacity as a partner.
  • Qualified REIT dividends.
  • Qualified PTP income.

Disclaimer

All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage.

WhatsApp/Line/Wechat: +852 5616 4140

Related Posts

Introduction to Voting Power of Shareholders in the U.S. Corporation

Voting rights pertain to the entitlement of corporate shareholders to participate in decisions regarding corporate policies. Typically, only shareholders of record have the privilege to vote either in person or through a proxy (unless they possess non-voting shares) during a shareholders' assembly. The corporate records will list the owners of all outstanding shares, along with the record date preceding the meeting.

Introduction about U.S. Marketplace Facilitators and Sales Tax

With the establishment of Economic Nexus, many states have enacted Marketplace Facilitator Acts (MFAs) that require some Marketplace Facilitators to be responsible for collecting and remitting sales tax on behalf of remote sellers. Marketplace Facilitators generally are required to obtain a seller’s permit or register a seller's sales tax number firstly for a marketplace or platform’s seller in a particular state

What Remote Sellers Need to Know About U.S. Sales Tax

Before Sales Tax Reform, a seller must have a “taxable nexus” in a state before the state can require the seller to collect and remit sales and use tax. Therefore, remote sellers should also be considered physically present to be subject to sales tax. For example, having an office or other place of business in the state, hiring employees in the state, or holding a property in the state.

What are U.S. sources of retirement income?

Nearly 35 million Americans were 65 or older in year 2000，and the average American, according to the U.S. Census Bureau retires at age 63. As the minimum guaranteed system of federal pensions (Social security payment) led by the US government has gradually weakened in recent years, the US pension market is mainly dominated by the social security system, which gradually favors the savings pension insurance dominated by individuals and enterprises.