By Mark Castro, CPA
January 9, 2019
The Tax Cuts and Jobs Act included a provision that may allow an individual to deduct 20% of their domestic qualified business income from a partnership, S Corporation or sole proprietorship (Schedule C or F). This provision is in effect for tax years 2018 – 2025.
For the vast majority of taxpayers (90%) this deduction is calculated as the lesser of:
This means that for most taxpayers, the deduction is calculated based on the Simplified Worksheet on page 37 of the 2018 Form 1040 instructions.
For the remaining 10% of taxpayers whose income exceeds $157,500 ($315,000 for joint filers) the deduction will be limited as follows:
For these taxpayers the deduction is calculated based on worksheets in the newly revised draft 2018 IRS Publication 535 (Qualified Business Income Deduction).
See the Business owners can claim a qualified business income deduction page on the IRS website for more information.