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Section 199A Recap

Article ID: 352
Last updated: 24 Nov, 2018
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By Jason Watson ()
Posted November 23, 2018

Section 199A Comparison Recap
Hopefully you are still with us and not in the fetal position sucking your thumb. To hammer these points home, the Section 199A won’t help everyone and the S corporation still has some shine (although perhaps less in some situations) as an overall tax reduction mechanism.


Here is a summary of the previous Section 199A side-by-side comparisons-

Business

Status*

Biz
Income

Other
Income

Health
Ins.

199A
Benefit

S Corp
Savings

Consultant

Married

100,000

1,496

8,089

Consultant

Married

100,000

60,000

2,742

6,152

-

Consultant

Married

100,000

1,496

7,518

Consultant

Married

100,000

10,000

1,514

9,786

-

Retailer

Married

200,000

5,983

7,379

Retailer

Married

200,000

100,000

5,983

5,715

-

Retailer

Single

250,000

10,906

18,551

Retailer

Married

250,000

7,479

5,329

-

Retailer

Single

250,000

10,906

18,551

Attorney

Single

250,000

0

7,645

-

Surgeon

Single

600,000

0

8,133

Goat Herder

Single

600,000

28,044

36,177

The far right column, S Corp Savings, is your net savings after forfeiting a part of the Section 199A deduction. The deduction reduction if you will.

Missing Guidance for Schedule C
There are some things we are unsure about. One example is 401k or defined benefits contribution. This is typically an adjustment on Form 1040 separate from Schedule C. Will these amounts get filtered back into the Section 199A calculation when basing it on Schedule C net business income? Probably… since this would be a double dip. Same with self-employment taxes and health insurance We’ll have to wait and see on handling the C.

Missing Guidance for Mixed Income Sources
What happens if big shot surgeon owns a gaggle of rentals which throws off $100,000 in net business income? Assume that he or she is phased out of the Section 199A deduction based on the specified service trade of being a doctor. Can he or she still get the Section 199A deduction based on the rental income? We would like to think so, but we’ll have to wait and see.

American Jobs and Closing Tax Loopholes Act of 2010 (HR 4213)
Here is some chin-scratching fodder for your day. Back in 2010, the House created a bill that would disqualify small professional service S corporations (attorneys, doctors, consultants, etc.) from benefiting from the S Corp “loophole.” Thankfully the Senate saw this as discrimination since non-professional service businesses (construction, retailers, manufacturers, etc.) would still benefit from the “loophole.” The bill was rejected naturally.

Tax Cuts & Jobs Act of 2017
It appears specified service trades or businesses dodged another bullet. There was chatter similar to 2010 but eventually it gave way. Yes, some of the tax breaks disappear for attorneys, doctors, accountants and anyone else whose reputation or skill is the material income producing factor. However, it could have been way worse. Instead the crummy laws of 2017 and earlier are simply the high-water mark, and if you are phased out of the Section 199A deduction you are no worse off. Yeah, it doesn’t make you feel any better.

Thank you for hanging in there!

Taxpayer's Comprehensive Guide to LLCs and S Corps : 2019 Edition
This KB article is an excerpt from our book which is available in paperback from Amazon, as an eBook for Kindle and as a PDF from ClickBank. We used to publish with iTunes and Nook, but keeping up with two different formats was brutal. You can cruise through these KB articles, click on the fancy buttons below or visit our webpage which provides more information at-

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