Not really. Separate issue.

A partnership would determine whether its activities make up a single trade or business or multiple trades or businesses. I would think that if a partnership holds ten properties, for example, that it might group those activities as a single trade or business.

I see this an analogous to a business that sells ten products. Surely that business often treats those ten products as a single trade or business.

And just to make this point clear, grouping ten properties or ten products isn’t “aggregating” and shouldn’t require the election to aggregate.

Steve,

Thank you for your reply and the reference to the final regulations.

Your feedback is much appreciated.

I wonder if what you’re noticing reflects two subtleties. First, the Section 199A deduction for REIT dividends and qualifying PTP income doesn’t look at W-2 wages or UBIA (“unadjusted basis immediately after acquisition”). Second, the Treasury clarifying in final regulations that SSTB status does apply (potentially) to PTPs. (See, e.g., page 24 in the final regulations.)

This does mean, as you point out, that a PTP owner could only see her or his deduction phased out once and for SSTB status… and not twice for both SSTB status and inadequate W-2 or UBIA.

I do however believe that you are not penalized by this ruling on $19k employee deferral under an S Corp while you would be with a schedule C.

Yeah I am thinking the same way. I.e., we don’t have to adjust for the employee elective deferral with an S corporation (because the elective deferral adjustment is already embedded in the shareholder-employee wages). But we do for the sole proprietor.

BTW, I think (and assume you also think) the same sort of accounting occurs with partner guaranteed payments. Some amount that’s already been removed from QBI because it’s part of a guaranteed payment doesn’t reduce QBI a second time.

I also read about your rules for submitting comments on previous topics to your current post. So, here it goes.

Regarding the “final” version of Publication 535 and Worksheet 12-A/Schedules A-D in Chapter 12, I am trying to understand the following changes to Schedule A from the “draft” version of Publication 535:

1. Schedule A is for SSTBs in the income range. The draft version of the schedule simply determines the applicable percentage of QBI, W2 and UBIA and forwards those adjusted figures to Schedule C or Part II of the worksheet as applicable.

The “final” version of Schedule A breaks the schedule into two parts. “Part I – Non-Publicly Traded Partnership” and “Part II – Publicly Traded Partnership”. Schedule A/Part I is the same as the “draft” version of the schedule. Only now, it appears to apply for SSTBs in the income range that are also a Non-Publicly Traded Partnership.

Schedule A/Part II of the “final”, which did not appear in the “draft”, determines the applicable percentage of qualified PTP or loss and forwards those adjusted figures to Part IV of the worksheet.

Does this mean that SSTBs that are in the income range and are a PTP do not have their QBI, W2 and UBIA adjusted? Under this scenario, my interpretation of the schedule is that only Part II (adjustment of PTP income or loss) would apply, If this is the case, then the double phase-out you wrote about in your post: “Section 199A Deduction Phase-out Calculations” does not seem to apply for PTPs? Is this correct?

I have not found any instructions in Publication 535 covering these changes to Schedule A, which is unfortunate. I was hoping you might have some insight/comments as to the change and feedback on my interpretation above.

Thanks so much for your articles. They are very helpful.

I was thinking about SE taxes and the employer side of payroll taxes wrong. In my incorrect fantasy world above, the employer side of payroll taxes weren’t subtracted from profit to calculate what QBI is, but in reality they are. However as you mentioned the generally smaller overall payroll taxes with an S Corp do help.

I do however believe that you are not penalized by this ruling on $19k employee deferral under an S Corp while you would be with a schedule C. Am in understanding that wrong? That money is already subtracted as part of the owners salary, and the owner may do whatever he/she wants with it such as put up to $19k into a solo 401K. If you go over that into the profit sharing portion then you DO have to explicitly subtract it to calculate QBI.

With no S Corp there is no clean distinction between the employer deferral and profit sharing portion of contributions so you are forced to subtract it all from your initial QBI.

Happy to be corrected on any misunderstandings. I’m just an interested hobbyist acting as CFO for my wife’s new small (1 person) business. Your website has been immensely helpful in this pursuit so thank you for all that you do!

Yes.