Section 199A Deduction Explained

Section 199A Deduction

If you own a business, you have probably heard about the Section 199A Deduction. This is also known as a Qualified Business Income Deduction. You may wonder what exactly this is and how does it work? David Mills CPA has put together information in order to help you better understand the 199A Deduction.

What Does The 199A Deduction Do?

The 199A Deduction reduces taxable income, but not adjusted gross income. This deduction does not lower Illinois taxable income or does not lower self-employment tax.

Who Is This Deduction Available For? 199A Deduction

The 199A Deduction is available to sole proprietors, partners, and S corporation shareholders. It is not available to C corporations.

How Is The 199A Deduction Calculated?

The calculation for the 199A Deduction can be complex. It is partly dependent on the taxpayer’s total taxable income. There are no limits for married filing jointly taxpayers with $315,000 or less of taxable income. There are typically no limits on the deduction regardless of whether the business is a specified service trade or business.  199A Deduction

The deduction is the lesser of the Qualified Business Income or 20 percent of taxable income minus long-term capital gains.

What Are The Limits of The 199A  Deduction?

Limits exist for married filing joint taxpayers with taxable incomes between $315,000 and $415,000. A limit begins to phase in based on wages and/or qualified property acquisitions.

If you earn an income above $415,000, limits are determined based on W-2 wages and qualified property acquisitions. This deduction is not available to the taxpayer under certain circumstances.

David Mills CPA Is Here To Help!

If you are looking for more information or need help with your 199A Deduction, contact David Mills CPA today. Our team of experts will be happy to assist you with all of your financial needs. David Mills offers financial and accounting services to small and medium-sized businesses, as well as individuals in Peoria, IL as well as the surrounding areas. We look forward to hearing from you!