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Section 199A 250k Comparison

Article ID: 349
Last updated: 24 Nov, 2018
Revision: 4
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By Jason Watson ()
Posted November 23, 2018

Same online retailer (not a specified service business) showing single versus married.

Single

Married

ln

No S

S Corp

No S

S Corp

1

Business Income

250,000

250,000

250,000

250,000

2

  less W-2 Wages inc. SEHI, HSA, etc.

0

87,500

0

87,500

3

  less Payroll Taxes

0

6,694

0

6,694

4

Net Business Income Section 199A

250,000

155,806

250,000

155,806

5

Adjustments to 1040 / NBI

6

  less Social Security Tax

7,979

0

7,979

0

7

  less Medicare Tax

3,348

0

3,348

0

8

  less SEHI, HSA, etc.

0

0

0

0

9

Other Taxable Income

0

0

0

0

10

Adjusted Gross Income*

238,673

243,306

238,673

243,306

11

Itemized / Std Deductions

12,000

12,000

24,000

24,000

12

Taxable Income Before Section 199A

226,673

231,306

214,673

219,306

-

13

Section 199A Net Biz Income

50,000

31,161

50,000

31,161

14

Section 199A W-2 Wage Limit

0

43,750

0

43,750

15

Section 199A Taxable Income Limit

45,335

46,261

42,935

43,861

-

16

Section 199A Benefit

0

31,161

42,935

31,161

17

Marginal Income Tax Rate

35%

35%

24%

24%

18

Income Tax Benefit from Section 199A

0

-10,906

-10,304

-7,479

19

  plus Self-Employment Tax

22,654

0

22,654

0

20

  plus Tax on Line 12 Delta (above)

0

1,622

0

1,112

21

  plus Payroll Tax

0

13,388

0

13,388

22

Net Tax After Section 199A Benefit

22,654

4,103

12,350

7,021

-

23

Net S Corp Benefit $

18,551

5,329

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

Assumptions are $250,000 in business income prior to $87,500 in reasonable shareholder salary. Itemized deductions are $12,000 as a single taxpayer and $24,000 as a married taxpayer.

Note the spreads in Section 199A deduction benefit on Line 16 and the subsequent income tax benefit on Line 18. In the scenario where the taxpayer is single, he or she is phased out of Section 199A deduction because of income and subsequent W-2 limitations (Line 14).

The example is used to show the limitations of Section 199A due to income based on marital status. However, note that by electing S Corp tax status the Section 199A benefit is identical (Line 16). The difference then becomes the income tax benefit of this deduction which is a factor of marginal tax rates (Line 17).

For couples who are not married, there might be a reason to be legally married without altering your relationship definition just to grab some additional Section 199A benefit. Vegas baby!

Taxpayer's Comprehensive Guide to LLCs and S Corps : 2019 Edition
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Section 199A 200k Comparison       Section 199A Specified Service Business Comparison Part 1