The document provides an overview of the qualified business income deduction (Section 199A) established by the Tax Cuts and Jobs Act. It discusses that the deduction provides eligible taxpayers a deduction of up to 20% of qualified business income. It outlines the eligibility requirements, defines qualified business income and specified service trades, and provides examples for calculating the deduction based on taxable income thresholds and limitations for specified service businesses.

1. Qualified Business Income Deduction
(Sec 199A)
Presented by:
HARSHWAL & COMPANY LLP
Managing Partner: Sanwar Harshwal,
CPA, CIA, CISA, CFF, FCA, CRMA, CGMA, CCA
Contact Info: (858) 784-1622 | sanwar@harshwal.com
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2. INTRODUCTION
• The Tax Cuts and Job Act established new code Section199A, which
provides potential deduction equal to 20% of Qualified Business
Income (QBI) from sole proprietorships, S corporations,
partnerships, and LLCs taxed as partnerships.
• The QBI deduction is claimed by individual taxpayers on their
personal tax returns.
• The deduction is available for tax years beginning after December
31, 2017 and before January 1, 2026.
• 199A deduction cannot be higher than 20% of net taxable income
excess of the capital gain before 199A deduction.
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3. ELIGIBLE TAXPAYER
The QBI deduction is available to the business owner of the pass-
through entities, includes:
Pass-through entities
o Sole proprietorships
o Partnership
o S corporation
o LLC
o Trusts, Estates
Rental properties & REITs
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4. QUALIFIED BUSINESS INCOME
Include :
• Net income, gain, deduction and loss that are with respect to a
qualified trade or business
• Only domestic trade or business qualify
• QBI include passive and active income both.
Exclude :
• Interest, Dividend, Capital gain and losses
• Commodity gain/loss
• Foreign currency net gain/losses, notional principal contracts and
annuities unless directly related to business activates.
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5. QBI LIMITATIONS
 The qualified business income of S corporation must be reduced
by reasonable compensation paid to S corporation Owners and
Officers.
 The qualified business income of partnership must be reduced by
guaranteed payment made to the partner.
 Net QBI losses will be carried forward to reduce next year’s QBI
deduction.
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6. QUALIFIED TRADE OF BUSINESS
The term “Qualified Trade Business” means any trade or business
other than
 A specified service trade or business
 the trade of business of being as an employee
This will be calculate separately for each qualified business of
the taxpayer conduct in US.
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7. SPECIFIED SERVICE TRADE OF BUSINESS
As specified service trade or business mean any trade or business
involving the performance of service in the filed of –
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• Heath • Law
• Accounting • Consulting
• Financial Services • Brokerage services
• Actuarial Services • Athletics
• Performing Art • Investment Management
• Any trade or business where the principal asset of such trade or
business is the reputation or skill of one or more of its employees
or owners.

8. COMPUTATION OF §199A DEDUCTION
The deduction is equal to the sum of -
1. The Lesser of :
• the “Combined Qualified Business Income” of Taxpayer
• 20% of the excess of taxable income over the sum of any net
capital gain plus the aggregate amount of qualified cooperative
dividends
2. The Lesser of :
• 20% of qualified cooperative dividend, or
• Taxable income less net capital gain
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9. COMBINED QUALIFIED BUSINESS INCOME
The CBQI is equal to the sum of -
1. The Lesser of :
• 20% of the taxpayer’s QBI, or
• The Greater of:
• 50% of W-2 wages with respect to the business, or
• 25% of W-2 wages with respect to the business + 2.5% of
the unadjusted basis of all Qualified Property.
2. Plus:
• 20% of qualified REIT dividends
• 20% of qualified Publicly Traded Partnership Income
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10. DEDUCTION IF TAXABLE INCOME IS:
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Specified Service Business Other Business
Taxable income less than
$315,000 (Married) /
157,500 (Other)
Deduction = 20% of QBI Deduction = 20% of QBI
Taxable income greater
than $415,000 (Married)
/ 207,500 (Other)
No Deduction Deduction limited to the
greater of Wage Limit or
Wage/Asset Basis Limit
Taxable income between
$315,000 to $415,000
(Married) or $157,500 to
$207,500 (Other)
Deduction phased out
ratably for income between
$315,000 to $415,000
(Married) or $157,500 to
$207,500 (Other)
Wage Limit and
Wage/Asset Basis Limit are
phased in for income
between $315,000 and
$415,000 (Married) or
$157,500 to $207,500 (other)

11. CALCULATION OF §199A DEDUCTION
klgates.com 11
Result (D)
amount equal to lesser of:
(i) QBI x 20% or
(ii) The greater of:
(1) W-2 wages x 50% and
(2) W-2 wages x 25% + 2.5%
of unadjusted basis of
depreciable property
Is taxable income more
than threshold amount?*
Yes
Is the income from a
“specified service”?
Is taxable income
more than threshold
amount + phase-
in?**
Is taxable income
more than threshold
amount?* Result (C)
Amount = Result (B) reduced
by difference between (i) &
(ii) in Box D multiplied by
reduction ratio.
Result (B)
Deduction =
QBI x 20% Is taxable income more
than threshold amount
+ phase–in?**
* Threshold Amount is $315,000 of taxable income if filing jointly and $157,500 in all other cases
** Phase-In is $100,000 of taxable income if filing jointly and $50,000 in all other cases
Result (A)
No QBI Deduction is allowed
Yes
Yes
Yes
Yes
No
No
No
No
No
Result (E)
Same as the formula (C) but
the QBI, Wages and QP must
be reduced by the reduction
ratio first.

12.  Lower Threshold :- $315,000 of taxable income if filing jointly and
$157,500 in all other cases
 Upper Threshold:- $415,000 of taxable income if filing jointly and
$207,500 in all other cases
 Reduction Ratio:-
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CALCULATION OF REDUCTION RATIO
Taxable income above the lower income threshold
100,000(Married) 50,000(Other)

13. A and B file a joint return on which they report taxable
income of $330,000, of which $300,000 is ordinary income
from A's interest in an S corporation. The S corporation is
not a specified service trade or business. A's allocable share
of the business's W-2 wages is $80,000, and his share of the
business's unadjusted basis in its qualified property is
$600,000.
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Example for Result C

14. Solution
Amount equal to lesser of:
a)QBI x 20% or
b)The greater of:
 W-2 wages x 50% or
 W-2 wages x 25% plus
2.5% of unadjusted basis
of depreciable property
Reduction Ratio
Deduction Amount
300,000*20% = 60,000
80,000*50% = 40,000
80,000*25% = 20,000
600,000*2.5% = 15,000
(330,000-315,000) /100,000 = .15
[60,000-{(60,000-40,000).15}]=
57,000
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15. A and B file a joint return on which they report taxable
income of $330,000, of which $300,000 is ordinary income
from A's interest in an S corporation. The S corporation is a
specified service trade or business. A's allocable share of the
business's W-2 wages is $80,000, and his share of the
business's unadjusted basis in its qualified property is
$600,000.
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Example for Result E

16. Solution
Amount equal to lesser of:
a)(1-RR*QBI) x 20% or
b)The greater of:
 (1-RR*W-2wages) x 50%
or
 (1-RR*W-2wages) x 25%
plus2.5% *(1-RR *
Unadjusted basis of
depreciable property)
Reduction Ratio
Deduction Amount:-
{300,000*(1-.15)}*20%= 51,000
{80,000*(1-.15)}*50%= 34,000
{80,000*(1-.15)}*25%= 17,000
{600,000*(1-.15)}*2.5%= 12,750
(330,000-315,000) /100,000 = .15
51,000-(51,000-34,000).15= 48,450
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17. 17
QUALIFIED BUSINESS INCOME
CALCULATION FOR PARTNER

18. W-2 wages are the total wages subject to wage withholding under Code
Sec. 3401(a), elective deferrals, and deferred compensation paid by the
qualified trade or business with respect to employment of its
employees during the calendar year ending during the tax year of the
taxpayer.
Practice Tip:
“Total wages subject to wage withholding” will generally correspond
with the amount on Form W-2, Box 1. “Elective deferrals” and
“deferred compensation” correspond with the amount in Box 12.
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W-2 Wages

19. The term qualified property is generally defined to mean, with respect
to any qualified trade or business, tangible property of a character
subject to depreciation under section 167 that is
 held by and available for use in the qualified trade or business at
the close of the taxable year,
 which is used at any point during the taxable year in the
production of QBI, and
 the depreciable period for which has not ended before the close
of the taxable year.
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QUALIFIED PROPERTY

20.  This will be calculate separately for each qualified business of
the taxpayer conduct in US.
 Taxpayer cannot save self-employment tax on the QBI
deduction.
 C-corporation income receive from the pass through entity will
not allowed for deduction.
 The Sec. 199A deduction cannot take in loss years. A net QBI
loss is treated as a loss from a qualified trade or business in the
succeeding taxable year
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OTHER IMPORTANT FACTS

21. SPECIAL CONSIDERATION- MULTIPLE
BUSINESS
 If individual have multiple businesses, deduction will calculated
separately for each qualified business of the taxpayer.
 If one or more trade or businesses have negative qualified
business income, the loss will be allocated proportionately in
the ratio of qualified business income to other trade or business.
 However, wages and property amounts from the business with
the loss will not be allocated to the other trades or businesses.
 If overall qualified business income for the tax year is negative,
Section 199A deduction will be zero for the year. In this
situation, negative amount will be carry forward the to the next
tax year.
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QUESTION ?