Comments on: Pass-through Income Deduction: Top 12 Things Every Business Must Know

By: Steve

Steve — Sun, 11 Mar 2018 14:33:26 +0000

In reply to Steve. Thanks!

By: Steve

Steve — Sun, 11 Mar 2018 14:09:58 +0000

In reply to Steve. You don't need to be an LLC to get the Sec. 199A deduction. It works for a sole proprietorship.

By: Steve

Steve — Sat, 10 Mar 2018 22:12:08 +0000

I have a small (gross about $40K annually) side business where I file Schedule C income but I’m not structured as an LLC (or anything else; I’m just a sole proprietor). Does that matter in terms of my eligibility for the 20% deduction, or do I need to formally structures as an LLC (or some other entity)?

By: Steve

Steve — Mon, 05 Mar 2018 14:33:36 +0000

In reply to Lenora. I don't think so. UBIT is the tax an exempt organization (your IRA, in this case, but usually a nonprofit) pays when it earns untaxed business income. That's not what the Sec. 199A deduction lessons the tax on.

By: Lenora

Lenora — Fri, 02 Mar 2018 04:49:36 +0000

I have a self-directed IRA that receives pass-thru income that is subject to UBIT (unrelated business Income tax) inside the IRA. The business activity is residential housing construction., and the income is reported to my IRA on Line 1 of the K-1.

Section 199A refers to trusts as being eligible for the 20% deduction, and an IRA is a trust….

So,does an IRA qualify for the 20% Section 199A deduction on its taxable pass-thru business income?

By: Steve

Steve — Fri, 16 Feb 2018 02:30:41 +0000

In reply to Jim B.

Because wages don’t count as qualified business income, and cutting your wages bumps up your qualified business income, what you want to try and do is dial down your wages.

That pushes up your qualified business income. And that means a bigger Sec. 199A deduction.

Obviously, you need to think about whether this works. (There is a requirement that if you work in the business, you’re supposed to be paid wages.)

By: Jim B

Jim B — Thu, 15 Feb 2018 22:38:50 +0000

Yikes, never been more confused. So here’s my scenario. Wife has a small health-related service practice organized as a single-member LLC (disregarded entity). I am her only employee. Until now we have paid the bulk of the businesses earnings as W-2 wages to the two of us. Leaving just enough Schedule C income to cover the Self-Employed Health Insurance deduction. Our annual total W-2 plus Sched C income is well under the $315k limit. How can we make use of the pass-through deduction? Pay less W-2 wages? Are there limits to that?

By: Tommy

Tommy — Thu, 15 Feb 2018 15:10:26 +0000

In reply to Steve.

Thanks for the article! My operations for this company are still rather small at less than $50,000 in revenue, but strong with roughly a 40% profit margin. So far, I’ve gotten back all the money I put in (only $3500!), expanding about 4-5 times in size, and have no debt. 2018 will be the year of dollar growth though as I amp up marketing and a few new products.

PS. My company is a service business, but it’s more so an entertainment category, where we run games for birthday parties, corporate events, festivals, and the like. I don’t think this excludes me based on what you’ve described, I do not operate the events, rather contracted hands.

By: Steve

Steve — Thu, 15 Feb 2018 14:42:21 +0000

In reply to Tommy.

If you’re married and your taxable income is less than $315K, you don’t need to have W-2 wages “inside” the entity to qualify for the Sec. 199A deduction.

BTW, if you anticipate substantial income from the single member LLC in 2018, you ought to consider making an S election for the LLC.

Here’s a blog post that can start your learning: http://evergreensmallbusiness.com/million-dollar-s-corporation-mistake/

By: Tommy

Tommy — Wed, 14 Feb 2018 16:23:45 +0000

In reply to Tommy. EDIT: my LLC does not have w-2 wages. I have another full time job where I receive a w-2, as does my wife.