Randall owns an S corporation and learned that he may be eligible to take a pass-through tax deduction, a new tax feature included in the most recent federal tax legislation. What is it and how might it apply to him?
Owners of some pass-through businesses, such as S corporations and sole proprietorships, or of certain real estate investment trusts (REITs) and publicly traded partnerships, may take a deduction equal to 20% of their qualified business income (QBI) in tax year 2018.
The deduction phases out for single tax filers at $157,500 of taxable income and for married taxpayers filing jointly at $315,000. In 2019, the phase-out for single taxpayers and heads of households with taxable income is $160,700, while couples filing jointly see the deduction phase out at $321,400.
Guidance for determining this new tax break continues to evolve a year after its passage, making it important that Randall consult a tax professional. Because the legal structure of any business should involve considerations beyond taxes, he may also want to consult his attorney to review his situation.
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