www.qns.com I LIC COURIER I JUNE 2019 35
TAX TIPS
THE 20% QUALIFIED
BUSINESS INCOME
DEDUCTION
BY JOHN SAVIGNANO, CPA
Self-employed people and owners of pass-through rms, such as
LLCs, partnerships and S corporations, can take the break. ere are
lots of special rules and restrictions, most of which apply to high
earners. Individuals who qualify for the 20% write-o claim it on line
9 of the 1040. ere is no special form to use for 2018 returns, but
such a form is coming for 2019.
What exactly is qualied business income?
QBI is your allocable share of income less any deductions from a
trade or business. It doesn’t include wages, dividends, capital gain or
loss, nonbusiness interest income, reasonable compensation from S
rms or guaranteed payments from partnerships. If you have
multiple businesses, you generally determine QBI separately for each
one, but commonly owned similar activities may be aggregated if
certain conditions are met. If you own an interest in an S corporation,
partnership, multimember LLC or trust, the K-1 you receive will
report your share of the rm’s QBI and other related items.
What is a specied service trade or business, and why is it
important?
An SSTB is a business involving the performance of services in
certain elds:
Health, law, accounting, actuarial science, performing arts,
consulting, athletics, nance, brokerage, investment management,
and securities trading and dealing.
IRS regulations delve into each SSTB and set forth lots of
exceptions. For example, health clubs, pharmaceutical research and
sales, architects, engineers, real estate agents, insurance agents and
traditional banks are not considered SSTBs.
e 20% QBI deduction phases out for high-incomers engaged in
an SSTB. e phaseout level starts at 2018 taxable incomes in excess
of $315,000 for couples and $157,500 for others. Note, that taxable
income excludes the 20% deduction. If 2018 taxable income is more
than $415,000 for joint lers…$207,500 for singles…the deduction is
zero for that SSTB. ese gures are adjusted for ination annually.
Is Schedule E rental income eligible for the 20% deduction?
It depends. e break applies to QBI from a trade or business. IRS
refers to the standard under federal tax code Section 162 for dening
a trade or business. is standard is unclear in the context of rentals
because it’s based on a taxpayer’s specic facts.
A safe harbor applies if at least 250 hours are devoted to the rental
activity by the property owner, employees or independent contractor
in a given year. Time spent on repairs, collecting rent, negotiating
leases and tenant services count. Hours put in driving to and from
the real estate aren’t included for this purpose.
If the 250-hour test is met, you can treat the rental as a trade or
business for purposes of the QBI deduction. ere are sti
recordkeeping rules to comply with. e safe harbor rules aren’t set
in stone. IRS says it’s open to tweaking them. An inuential
accounting group has asked IRS to lower the hours threshold to 100.
John Savignano is a partner with Savignano Accountants & Advisors
located at 47-46 Vernon Blvd., Second Floor, in Long Island City. If
you have any questions or require additional information, please call
John at 718-707-0955.
/www.qns.com
/www.qns.com
