Tax Tip – Qualified Business Income Deduction

Section 199A provides a deduction of up to 20% of income from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust, or estate.

The §199A deduction may be taken by individuals and by some estates and trusts. See Line 10, 2019 Form 1040. Starting in taxable year 2019, taxpayers must attach Form 8995, Qualified Business Income Deduction Simplified Computation, or Form 8995-A, Qualified Business Income Deduction as support for the §199A deduction. Taxpayers eligible to use Form 8995 include: (i) those who have QBI, qualified REIT dividends, or qualified PTP income or loss; (ii) those who have 2019 taxable income before QBI deduction less than or equal to the threshold amounts; and (iii) those who are not patrons in a specified agricultural or horticultural cooperative. All other taxpayers are required to use Form 8995-A. The §199A deduction is not available for wage income or for business income earned through a C corporation. The IRS’s Small Business/Self-Employed (SB/SE) Division issued a memorandum on December 9, 2019

(SBSE-04-1219-0054) stating that effective immediately, the IRS will not allow the QBI deduction on an IRS-prepared substitute return.

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(Updated 02/24/2021 06:11)

Published by Don Fitch, CPA

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