199A “Qualified Business Income Deduction” tax break if you are self-employed

Also referred to as IRS code section 199A deduction. This was one of the most significant potential benefits of the Tax Cuts and Jobs Act of 2017 (officially P.L. 115-97) that went into effect for tax years after 2017.

Previously, back in January 2018 right after passage of this law, I’d written a summary of the provisions of the new tax law that pertain to individual taxes which I will link to here.  However, at that time I did not include a summary of the section 199A Qualified Business Income deduction (QBI). That was because many aspects of this QBI deduction were still unclear in many material respects and as tax professionals we needed to wait for IRS technical corrections, regulatory guidance and definitional guidance as to much of the terminology which was ambiguous. Now seven months later after passage of the new tax law, we are gradually getting more of these clarifications addressed.

In fact just today IRS issued further guidance on this that will serve to crack down on many manipulative schemes that were being hatched by some small business owners, along with some of their advisors, in attempts to make various restructuring changes to their businesses such that they could derive a larger tax benefit, which in some cases they might otherwise not qualify for at all.

Very early on, I along with many of my professional peers recognized the danger in making drastic recommendations to clients in order to attempt to exploit the QBI section 199A deduction. In fact, one news article I read today said: “if your accountant told you to hold off on taking big steps to qualify for the new business owner tax break, you should thank him or her.” Exactly!

This is why it is so important to work with a CPA in your business who can help you navigate what are often extremely complex issues related to taxation matters. See "how to get the most value from the services of your CPA" in your accounting and tax services.

During this past seven months I have attended multiple continuing education classes regarding the 199A deduction as well as done a lot of reading and working through the calculations under a broad number of client tax scenarios. While this deduction can certainly offer some significant tax savings for the self employed business owner, determining the potential tax savings is by no means a straight forward process as there are many twists and turns to be considered depending on each taxpayer’s situation. I plan to cover more details about this in future blog posts.