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Section 199A 200k Comparison

Article ID: 348
Last updated: 24 Nov, 2018
Revision: 3
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By Jason Watson ()
Posted November 23, 2018

New day, different problem. This is an online retailer earning $200,000 in business income.

Vanilla

Other Income

ln

No S

S Corp

No S

S Corp

1

Business Income

200,000

200,000

200,000

200,000

2

  less W-2 Wages inc. SEHI, HSA, etc.

0

70,000

0

70,000

3

  less Payroll Taxes

0

5,355

0

5,355

4

Net Business Income Section 199A

200,000

124,645

200,000

124,645

5

Adjustments to 1040 / NBI

6

  less Social Security Tax

7,979

0

7,979

0

7

  less Medicare Tax

2,678

0

2,678

0

8

  less SEHI, HSA, etc.

0

0

0

0

9

Other Taxable Income

0

0

100,000

100,000

10

Adjusted Gross Income*

189,342

194,645

289,342

294,645

11

Itemized / Std Deductions

24,000

24,000

24,000

24,000

12

Taxable Income Before Section 199A

165,342

170,645

265,342

270,645

-

13

Section 199A Net Biz Income

40,000

24,929

40,000

24,929

14

Section 199A W-2 Wage Limit

0

35,000

0

35,000

15

Section 199A Taxable Income Limit

33,068

34,129

53,068

54,129

-

16

Section 199A Benefit

33,068

24,929

40,000

24,929

17

Marginal Income Tax Rate

24%

24%

24%

24%

18

Income Tax Benefit from Section 199A

-7,936

-5,983

-9,600

-5,983

19

  plus Self-Employment Tax

21,315

0

21,315

0

20

  plus Tax on Line 12 Delta (above)

0

1,273

0

1,273

21

  plus Payroll Tax

0

10,710

0

10,710

22

Net Tax After Section 199A Benefit

13,379

6,000

11,715

6,000

-

23

Net S Corp Benefit $

7,379

5,715

*includes the S Corp W-2
There are several notables, takeaways and explanations-

Assumptions are $200,000 in business income prior to $70,000 in reasonable shareholder salary. Married taxpayer with $24,000 as a standard deduction (Line 11), with and without an additional $100,000 in taxable income (Line 9) such as a spouse or pension.

Note the spreads in Section 199A deduction benefit on Line 16 and the subsequent income tax benefit from Section 199A on Line 18. This is an interesting example since the extra household income increases the Section 199A deduction significantly.

However, when self-employment taxes and payroll taxes are added back, there is still a material savings even when Social Security limits are reached under the non-S Corp scenario.

If this example had $10,000 in self-employed health insurance premiums the savings on Line 24 would be $9,483 without additional household income (Line 9) and $7,099 with additional household income of $100,000.

Taxpayer's Comprehensive Guide to LLCs and S Corps : 2019 Edition
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