Steve, That helps. Especially the last part of that article. Thank you!

I corrected “information” to “inflation”… thanks for pointing that out. The phase-out ranges and formulas, as noted in the article, do apply to married couples but use a different range. Singles phase out from $157,500 to $207,500. Marrieds phase out from $315,000 to $415,000.

The “Maximizing Section 199A Deductions” monograph does into deep detail about the law. But there’s also pretty detailed discussions in the Section 199A Phase-out Calculations blog post.

Examples all seem to be single taxpayers. How does the deduction affect married taxpayers where one is a sole proprietor and the other a w-2 employee, assuming equal taxable numbers like 50k each? What seems like a straightforward deduction, section 199a seems awfully complicated. Does your book cover issues like that?

Hi Jay,

Thanks for kind words on the Section 199A ebook! Regarding the use of partnership to get around the usual S corporation limitations, here’s a good blog post that summarizes situation and points to primary sources: https://www.taxlawforchb.com/2015/11/partnering-with-an-s-corp/

I have a question about this. about the article here http://evergreensmallbusiness.com/s-corporation-partnerships/ where you wrote about the partnership of s-corporations,

Have you done any writing on how the substance over form doctrine or the step transaction doctrine applies to the use of a partnership of s-corps?

For example, suppose a business is created with two owners/partners. One owner can do a majority of what will create the customer value that earns all the money but he can’t do it alone and needs the assistance of a friend. The enticement for the friend to venture off with him is to get a small percentage of ownership. If they elect s-status the large difference between ownership percentages makes it hard for them to take distributions after receiving reasonable compensation. So a work around to give them flexibility could be to elect back to a partnership and then form s-corps like you your article said.

PS. I own a copy of the 199A ebook you wrote and it is fantastic. I just connected the dots that you authored the book and this site.

John, good question–and one I don’t have an answer to. Or even a good comment. But I will share this remark: Is the regulation’s language about “common law employees” causing AICPA to see issue as resolved? I.e., it looks like employers only get to count W-2 wages for common law employees and corporate officers. (So not “non-common-law” or statutory employees?) And this would sort of suggest statutory employees who aren’t common law employees simply get treated as regular old sole proprietors.

Count me, however, as fuzzy on how this would work. (Sorry. We don’t have any statutory employees as clients…)

You mention that this article also applies to Insurance Agents as well. I’m trying to o address the issue of whether QBI includes statutory employees as well, specifically, Insurance Sales persons that receive a Form W-2 (with the Statutory Employee box checked, and report this income along with their associated expenses on Schedule C. The AICPA sent a letter to Treasury on 2/21/18 requesting guidance on a number of Section 199A issues and this being one of them. In a subsequent letter to Treasury (after the Proposed Regs came out in August, 2018) this item was no longer listed as being in need of clarification. I’m thinking that the issue turns on whether the Statutory employee is deemed to be more of an independent contractor than an ’employee’. Based on my understanding of the ‘common law’ rules, I would treat them as independent contractors for purposes of QBI and allow them the deduction. If you have any thoughts on this issue, it would be most appreciated.