P a s s - T h r o u g h C a l c u l a t i o n s : S e c t i o n 1 - - PowerPoint PPT Presentation

Co hnRe znic k is a n inde pe nde nt me mb e r o f Ne xia I nte rna tio na l

P a s s - T h r o u g h C a l c u l a t i o n s : S e c t i o n 1 9 9 A

Q u a l i f i e d B u s i n e s s I n c o m e D e d u c t i o n : § 1 9 9 A

• Effe c tive re d uc tio n in ta x ra te o n c e rta in b usine ss

inc o me

• Ap p lie s to ta xp a ye rs o the r tha n c o rp o ra tio ns
• Effe c tive fo r ta x ye a rs b e g inning a fte r De c e mb e r

31, 2017, a nd b e fo re Ja nua ry 1, 2026

2

Q u a l i f i e d B u s i n e s s I n c o m e D e d u c t i o n : § 1 9 9 A

• De d uc tio n is d e te rmine d a nd ta ke n a t p a rtne r o r

sha re ho ld e r le ve l

• Sub je c t to limita tio ns, the d e d uc tio n is 20% o f the

“ c o mb ine d q ua lifie d b usine ss inc o me a mo unt” p lus 20% o f the “ q ua lifie d c o o p e ra tive d ivid e nd s”

3

Q u a l i f i e d C o o p e r a t i v e D i v i d e n d s

C e rta in typ e s o f d ivid e nd s p a id b y:

• Fa rme rs’ c o o p e ra tive s
• Any c o rp o ra tio n o p e ra ting o n a c o o p e ra tive

b a sis o the r tha n

• T

a x e xe mp t o rg a niza tio ns

• Mutua l sa ving s b a nks
• Insura nc e c o mp a nie s
• C o rp o ra tio ns e ng a g e d in furnishing e le c tric e ne rg y o r

te le p ho ne se rvic e to p e rso ns in rura l a re a s

4

Q u a l i f i e d C o o p e r a t i v e D i v i d e n d s : T y p e s o f D i v i d e n d s

• Pa trona g e divide nds: a mo unts p a id to a p a tro n
• f a c o o p e ra tive o n the b a sis o f q ua ntity o r va lue
• f b usine ss d o ne with suc h p a tro n
• Pe r- unit re ta in a lloc a tion: a mo unts p a id to a

p a tro n with re sp e c t to p ro d uc ts ma rke te d to him d e te rmine d witho ut re g a rd to the ne t e a rning s o f the c o o p e ra tive

5

Q u a l i f i e d C o o p e r a t i v e D i v i d e n d s : T y p e s o f D i v i d e n d s

• Q ua lifie d writte n notic e of a lloc a tion: a writte n

no tic e fro m a c o o p e ra tive tha t c a n b e re d e e me d fo r c a sh b y the p a tro n

• O r a ny othe r simila r pa yme nt tha t is:
• Inc lud a b le in g ro ss inc o me a nd
• Re c e ive d fro m a n e ntity o f the typ e sta te d p re vio usly

6

C a l c u l a t i o n o f t h e D e d u c t i o n

T he de duc tion is e qua l to the sum of:

• T

he le sse r of:

• C o mb ine d q ua lifie d b usine ss inc o me o f the ta xp a ye r, o r
• 20% o f the e xc e ss o f the ta xp a ye r’ s ta xa b le inc o me fo r the

ye a r o ve r the sum o f a ny ne t c a p ita l g a in p lus q ua lifie d c o o p e ra tive d ivid e nd s

a nd

• T

he le sse r of:

• 20% o f the ta xp a ye r’ s q ua lifie d c o o p e ra tive d ivid e nd s fo r

the ta xa b le ye a r, o r

• T

a xp a ye r’ s ta xa b le inc o me , re d uc e d b y ne t c a p ita l g a in

7

C o m b i n e d Q u a l i f i e d B u s i n e s s I n c o m e A m o u n t

Sum of:

• T

he d e d uc tib le a mo unt fo r e a c h q ua lifie d tra d e

• r b usine ss, plus
• 20% o f the a g g re g a te a mo unt o f q ua lifie d REIT

d ivid e nd s a nd q ua lifie d p ub lic ly tra d e d p a rtne rship inc o me

8

D e t e r m i n a t i o n o f t h e D e d u c t i b l e A m o u n t

T he de duc tible a mount for e a c h tra de or busine ss is the le sse r of:

• 20% o f the ta xp a ye r’ s q ua lifie d b usine ss inc o me

with re sp e c t to the q ua lifie d tra d e o r b usine ss or

• T

he g re a te r o f:

• 50% o f the W-2 wa g e s with re sp e c t to the q ua lifie d tra d e
• r b usine ss, o r
• T

he sum o f 25% o f the W-2 wa g e s with re sp e c t to the q ua lifie d tra d e o r b usine ss p lus 2.5% o f the una d juste d b a sis imme d ia te ly a fte r a c q uisitio n o f a ll q ua lifie d p ro p e rty

9

Q u a l i f i e d P r o p e r t y

• T

a ng ib le p ro p e rty sub je c t to a n a llo wa nc e fo r d e p re c ia tio n tha t is he ld b y, a nd a va ila b le fo r use in, the q ua lifie d tra d e o r b usine ss a t the c lo se

• f the ta xa b le ye a r, a nd whic h is use d a t a ny

p o int d uring the ta xa b le ye a r in the p ro d uc tio n o f q ua lifie d b usine ss inc o me a nd the d e p re c ia b le p e rio d ha s no t e nd e d b e fo re the c lo se o f the ta xa b le ye a r.

• De pre c ia ble pe riod: e nd s o n the la te r o f 10 ye a rs
• r the la st d a y o f the la st full ye a r in the

p ro p e rty’ s re c o ve ry p e rio d .

10

Q u a l i f i e d P r o p e r t y : E x a m p l e

Pr

• pe r

ty Pur c hase Pr ic e Ye ar Pur c hase d R e c ove r y Pe r iod Building

$2,000,000 2006 39 ye a rs

E quipme nt

$100,000 2006 5 ye a rs

L and

$1,000,000 2006

Compute r

$1,000 2010 5 ye a rs

11

What is the amount of qualifie d pr

• pe r

ty in 2018?

Q u a l i f i e d P r o p e r t y : E x a m p l e

Pr

• pe r

ty Pur c hase Pr ic e Ye ar Pur c hase d R e c ove r y Pe r iod Building

$2,000,000 2006 39 ye a rs

E quipme nt

$100,000 2006 5 ye a rs

L and

$1,000,000 2006

Compute r

$1,000 2010 5 ye a rs

12

What is the amount of qualifie d pr

• pe r

ty in 2018? $2,001,000

Q u a l i f i e d B u s i n e s s I n c o m e

• Ite ms o f inc o me , g a in, d e d uc tio n a nd lo ss tha t

a re e ffe c tive ly c o nne c te d with c o nd uc t o f a tra d e o r b usine ss within the Unite d Sta te s a nd

• Is inc lud e d o r a llo we d in d e te rmining ta xa b le

inc o me fo r the ta x ye a r

13

Q u a l i f i e d B u s i n e s s I n c o m e : E x c e p t i o n s

• Q ua lifie d REIT

d ivid e nd s, q ua lifie d c o o p e ra tive d ivid e nd s a nd q ua lifie d p ub lic ly tra d e d p a rtne rship inc o me

• C a p ita l g a ins o r lo sse s
• Divid e nd s
• Inte re st inc o me o the r tha n wha t is p ro p e rly

a llo c a te d to the tra d e o r b usine ss

• Annuitie s o the r tha n wha t is re c e ive d in

c o nne c tio n with the tra d e o r b usine ss

• Fo re ig n b a se inc o me

14

Q u a l i f i e d T r a d e o r B u s i n e s s

Any tra d e o r b usine ss o the r tha n:

• A spe c ifie d se rvic e tra de or busine ss
• T

he tra d e o r b usine ss o f p e rfo rming se rvic e s a s a n e mp lo ye e

15

S p e c i f i e d S e r v i c e T r a d e o r B u s i n e s s

• Any tra d e o r b usine ss invo lving the p e rfo rma nc e
• f se rvic e s in the fie ld s o f he a lth, la w,

a c c o unting , a c tua ria l sc ie nc e , p e rfo rming a rts, c o nsulting , a thle tic s, fina nc ia l se rvic e s, b ro ke ra g e se rvic e s, o r a ny tra d e o r b usine ss whe re the p rinc ip a l a sse t is the re p uta tio n o r skill o f o ne o r mo re e mp lo ye e s.

• Also inc lud e s p e rfo rma nc e o f se rvic e s tha t c o nsist
• f inve sting a nd inve stme nt ma na g e me nt,

tra d ing o r d e a ling in se c uritie s, p a rtne rship inte re sts o r c o mmo d itie s.

16

L i m i t a t i o n s B a s e d o n Ta x a b l e I n c o m e

• T

he wa g e limita tio n a nd the e xc lusio n o f sp e c ifie d se rvic e b usine sse s p ha se s in fo r ta xp a ye rs with ta xa b le inc o me b e twe e n

• Sing le : $157,500 – $207,500
• Ma rrie d filing jo intly: $315,000 – $415,000

17

S u b s t a n t i a l U n d e r p a y m e n t P e n a l t i e s

With re g a rd to the § 199A d e d uc tio n, if the a mo unt

• f und e rsta te d ta x e xc e e d s 5% (no t 10%) o r $5,000,

yo u a re sub je c t to the 20% und e rp a yme nt p e na lty.

18

E x a m p l e s

E x a m p l e 1 : F a c t s

T a xp a ye r is a n 80% o wne r o f ABC Pa rtne rship , a la w firm with $200,000 ne t inc o me a nd $375,000 o f wa g e s. T a xp a ye r re c e ive s a g ua ra nte e d p a yme nt fo r se rvic e s o f $100,000 fro m ABC Pa rtne rship . T a xp a ye r re c e ive s $10,000 in d ivid e nd s fro m a REIT .

• T

a xp a ye r’ s filing sta tus: ma rrie d filing jo intly

• T

a xa b le inc o me : $250,000

20

E x a m p l e 1

• Sinc e T

a xp a ye r’ s ta xa b le inc o me is und e r the thre sho ld a mo unt o f $315,000, the limita tio n fo r sp e c ifie d se rvic e b usine sse s d o e s no t a p p ly.

• Also , the wa g e limita tio n d o e s no t a p p ly.
• Note : T

a xp a ye r’ s g ua ra nte e d p a yme nt inc o me is no t e lig ib le fo r the 20% d e d uc tio n; it is a kin to wa g e s a nd is ta xe d a t o rd ina ry ra te s.

21

E x a m p l e 1 : C a l c u l a t i o n

Ste p 1: de te rmine the de duc tible a mount

• L

e sse r o f e ithe r:

• 20% o f the ta xp a ye r’ s q ua lifie d b usine ss inc o me with

re sp e c t to the q ua lifie d tra d e o r b usine ss ($200,000 x T a xp a ye r’ s 80% sha re x 20% = $32,000) o r

• G re a te r o f:
• 50% o f wa g e s o r
• 25% o f wa g e s p lus 2.5% o f q ua lifie d p ro p e rty
• Do e s no t a pply sinc e T

a xpa ye r’s ta xa ble inc o me is

• ve r the thre sho ld a mo unt
• De d uc tib le a mo unt: $32,000

22

E x a m p l e 1 : C a l c u l a t i o n

Ste p 2: de te rmine the c ombine d qua lifie d busine ss inc ome a mount

• Sum o f:
• T

he d e d uc tib le a mo unt fo r e a c h q ua lifie d tra d e o r b usine ss ($32,000), p lus

• 20% o f the a g g re g a te a mo unt o r q ua lifie d REIT

d ivid e nd s a nd q ua lifie d p ub lic ly tra d e p a rtne rship inc o me ($10,000 x 20% = $2,000)

• C o mb ine d q ua lifie d b usine ss inc o me a mo unt:

$34,000

23

E x a m p l e 1 : C a l c u l a t i o n

Ste p 3: Ca lc ula te the de duc tio n

• De d uc tio n is e q ua l to the sum o f:
• T

he le sse r o f:

• T

he c o mb ine d q ua lifie d b usine ss inc o me a mo unt o f the ta xp a ye r ($34,000), o r

• 20% o f the e xc e ss o f the ta xp a ye r’ s ta xa b le inc o me fo r the

ye a r o ve r the sum o f a ny ne t c a p ita l g a in p lus q ua lifie d c o o p e ra tive d ivid e nd s ($250,000 x 20% = $50,000), plus

• T

he le sse r o f:

• 20% o f the ta xp a ye r’ s q ua lifie d c o o p e ra tive d ivid e nd s

(no ne ), o r

• T

he ta xp a ye r’ s ta xa b le inc o me ($250,000), re d uc e d b y ne t c a p ita l g a in (no ne )

• T

he d e d uc tio n is: $34,000

24

E x a m p l e 2 : F a c t s

T a xp a ye r is a n 80% o wne r o f ABC Pa rtne rship , a

ma nufa c turing busine ss with $1,250,000 ne t

inc o me , $375,000 o f wa g e s, a nd $2,000,000 of

qua lifie d prope rty.

T a xp a ye r re c e ive s $10,000 in d ivid e nd s fro m a REIT .

• T

a xp a ye r’ s filing sta tus: ma rrie d filing jo intly

• T

a xa b le inc o me : $450,000

25

E x a m p l e 2

• Sinc e T

a xp a ye r’ s ta xa b le inc o me is o ve r the thre sho ld a mo unt o f $315,000 p lus 100,000, the wa g e limita tio n a p p lie s in full.

• Sinc e ABC is a ma nufa c turing b usine ss, it is no t a

sp e c ifie d se rvic e b usine ss a nd is e lig ib le fo r the d e d uc tio n.

26

E x a m p l e 2 : C a l c u l a t i o n

Ste p 1: de te rmine the de duc tible a mount

• L

e sse r o f:

• 20% o f the ta xp a ye r’ s q ua lifie d b usine ss inc o me with

re sp e c t to the q ua lifie d tra d e o r b usine ss ($1,250,000 x T a xp a ye r’ s 80% sha re x 20% = $200,000) o r

• G re a te r o f
• 50% o f wa g e s ($375,000 x 80% sha re x 50% = $150,000) o r
• 25% o f wa g e s p lus 2.5% o f q ua lifie d p ro p e rty (($375,000 x

80% x 25% = $75,000) + ($2,000,000 x 80% x 2.5% = $40,000) = $115,000)

• De d uc tib le a mo unt: $150,000

27

E x a m p l e 2 : C a l c u l a t i o n

Ste p 2: de te rmine the c ombine d qua lifie d busine ss inc ome a mount

• Sum o f:
• T

he d e d uc tib le a mo unt fo r e a c h q ua lifie d tra d e o r b usine ss ($150,000), plus

• 20% o f the a g g re g a te a mo unt o r q ua lifie d REIT

d ivid e nd s a nd q ua lifie d p ub lic ly tra d e p a rtne rship inc o me ($10,000 x 20% = $2,000)

• C o mb ine d q ua lifie d b usine ss inc o me a mo unt:

$152,000

28

E x a m p l e 2 : C a l c u l a t i o n

Ste p 3: Ca lc ula te the de duc tio n

• De d uc tio n is e q ua l to the sum o f:
• T

he le sse r o f:

• T

he c o mb ine d q ua lifie d b usine ss inc o me a mo unt o f the ta xp a ye r ($152,000), o r

• 20% o f the e xc e ss o f the ta xp a ye r’ s ta xa b le inc o me fo r the

ye a r o ve r the sum o f a ny ne t c a p ita l g a in p lus q ua lifie d c o o p e ra tive d ivid e nd s ($450,000 x 20% = $90,000), plus

• T

he le sse r o f:

• 20% o f the ta xp a ye r’ s q ua lifie d c o o p e ra tive d ivid e nd s

(no ne ), o r

• T

he ta xp a ye r’ s ta xa b le inc o me ($450,000), re d uc e d b y ne t c a p ita l g a in (no ne )

• T

he d e d uc tio n is: $90,000

29

E x a m p l e 3 : F a c t s

T a xp a ye r is a n 80% o wne r o f ABC Pa rtne rship , a ma nufa c turing b usine ss with $1,250,000 ne t inc o me , $375,000 o f wa g e s, a nd $2,000,000 o f q ua lifie d p ro p e rty. T a xp a ye r re c e ive s $10,000 in d ivid e nd s fro m a REIT .

• T

a xp a ye r’ s filing sta tus: ma rrie d filing jo intly

• T

a xa b le inc o me : $365,000

30

E x a m p l e 3

• Sinc e T

a xp a ye r’ s ta xa b le inc o me is o ve r the thre sho ld a mo unt o f $315,000, b ut le ss tha n the thre sho ld a mo unt p lus 100,000, the wa g e limita tio n is 50% p ha se d in.

• No te tha t the wa g e p ha se in o nly a p p lie s if the

wa g e limita tio n a p p lie s, i.e ., the 20% d e d uc tio n is

• ve r the a mo unt o f the wa g e limita tio n.

31

E x a m p l e 3 : C a l c u l a t i o n

Ste p 1: de te rmine the de duc tible a mount

• L

e sse r o f:

• 20% o f the ta xp a ye r’ s q ua lifie d b usine ss inc o me with

re sp e c t to the q ua lifie d tra d e o r b usine ss ($1,250,000 x T a xp a ye r’ s 80% sha re x 20% = $200,000) o r

• G re a te r o f
• 50% o f wa g e s ($375,000 x 80% sha re x 50% = $150,000) o r
• 25% o f wa g e s p lus 2.5% o f q ua lifie d p ro p e rty (($375,000 x

80% x 25% = $75,000) + ($2,000,000 x 80% x 2.5% = $40,000) = $115,000)

• But ne xt, we must de te rmine the pha se - in a mount
• f the wa g e limita tion.

32

E x a m p l e 3 : C a l c u l a t i o n

• T

a xp a ye r’ s ta xa b le inc o me is $365,000, whic h is $50,000 o ve r the thre sho ld a mo unt o f $315,000.

• T

he ta xa b le inc o me ra ng e o f the p ha se -in is $100,000.

• T

he re fo re , the wa g e limita tio n is 50% p ha se d in ($50,000/ $100,000).

33

E x a m p l e 3 : C a l c u l a t i o n

• Ne xt, d e te rmine the to ta l a mo unt o f the wa g e

limita tio n – ($200,000 Q BI limite d b y $150,000 in 50% o f wa g e s = $50,000 limita tio n) .

• Sinc e the wa g e limita tio n a p p lie s 50%, the

limita tio n is $25,000 ($50,000 x 50%)

34

E x a m p l e 3 : C a l c u l a t i o n

• T

he Q BI d e te rmine d in ste p 1 o f $200,000 is re d uc e d b y the $25,000 wa g e limita tio n.

• T

he d e d uc tib le a mo unt is $175,000. No te tha t $175,000 is ha lf wa y (50%) b e twe e n the $200,000 a nd the full wa g e limita tio n o f $150,000.

• Now we c a n fina lly move to ste p 2…

35

E x a m p l e 3 : C a l c u l a t i o n

Ste p 2: de te rmine the c ombine d qua lifie d busine ss inc ome a mount

• Sum o f:
• T

he d e d uc tib le a mo unt fo r e a c h q ua lifie d tra d e o r b usine ss ($175,000), plus

• 20% o f the a g g re g a te a mo unt o r q ua lifie d REIT

d ivid e nd s a nd q ua lifie d p ub lic ly tra d e p a rtne rship inc o me ($10,000 x 20% = $2,000)

• C o mb ine d q ua lifie d b usine ss inc o me a mo unt:

$177,000

36

E x a m p l e 3 : C a l c u l a t i o n

Ste p 3: Ca lc ula te the de duc tio n

• De d uc tio n is e q ua l to the sum o f:
• T

he le sse r o f:

• T

he c o mb ine d q ua lifie d b usine ss inc o me a mo unt o f the ta xp a ye r ($177,000), o r

• 20% o f the e xc e ss o f the ta xp a ye r’ s ta xa b le inc o me fo r the

ye a r o ve r the sum o f a ny ne t c a p ita l g a in p lus q ua lifie d c o o p e ra tive d ivid e nd s ($365,000 x 20% = $73,000), plus

• T

he le sse r o f:

• 20% o f the ta xp a ye r’ s q ua lifie d c o o p e ra tive d ivid e nd s

(no ne ), o r

• T

he ta xp a ye r’ s ta xa b le inc o me ($450,000), re d uc e d b y ne t c a p ita l g a in (no ne )

• T

he d e d uc tio n is: $73,000

37

E x a m p l e 4 : F a c t s

T a xp a ye r is a n 80% o wne r o f ABC Pa rtne rship , a ma nufa c turing b usine ss with $1,250,000 ne t inc o me , $375,000 o f wa g e s, a nd $2,000,000 o f q ua lifie d p ro p e rty.

T a xpa ye r is a 50% owne r of XYZ Pa rtne rship, a re ta il busine ss with $1,000,000 ne t inc ome a nd $500,000

• f wa g e s.

T a xp a ye r re c e ive s $10,000 in d ivid e nd s fro m a REIT .

• T

a xp a ye r’ s filing sta tus: ma rrie d filing jo intly

• T

a xa b le inc o me : $2,000,000

38

E x a m p l e 4

• Sinc e T

a xp a ye r’ s ta xa b le inc o me is o ve r the thre sho ld a mo unt o f $315,000 p lus $100,000, the wa g e limita tio n a p p lie s in full.

• ABC a nd XYZ a re no t sp e c ifie d se rvic e b usine sse s

a nd a re e lig ib le fo r the d e d uc tio n.

• T

he d e d uc tib le a mo unt a nd wa g e limita tio n must b e a p p lie d to ABC a nd XYZ se p a ra te ly.

• T

he wa g e s fro m XYZ c a nno t b e a p p lie d to ABC .

39

E x a m p l e 4 : C a l c u l a t i o n

Ste p 1: de te rmine the de duc tible a mount for ABC Pa rtne rship

• L

e sse r o f:

• 20% o f the ta xp a ye r’ s q ua lifie d b usine ss inc o me with

re sp e c t to the q ua lifie d tra d e o r b usine ss ($1,250,000 x T a xp a ye r’ s 80% sha re x 20% = $200,000) o r

• G re a te r o f
• 50% o f wa g e s ($375,000 x 80% sha re x 50% = $150,000) o r
• 25% o f wa g e s p lus 2.5% o f q ua lifie d p ro p e rty (($375,000 x

80% x 25% = $75,000) + ($2,000,000 x 80% x 2.5% = $40,000) = $115,000)

• De d uc tib le a mo unt: $150,000

40

E x a m p l e 4 : C a l c u l a t i o n

Ste p 1: de te rmine the de duc tible a mount for XYZ Pa rtne rship

• L

e sse r o f:

• 20% o f the ta xp a ye r’ s q ua lifie d b usine ss inc o me with

re sp e c t to the q ua lifie d tra d e o r b usine ss ($1,000,000 x T a xp a ye r’ s 50% sha re x 20% = $100,000) o r

• G re a te r o f
• 50% o f wa g e s ($500,000 x 50% sha re x 50% = $125,000) o r
• 25% o f wa g e s p lus 2.5% o f q ua lifie d p ro p e rty (($500,000 x

50% x 25% = $62,500) + 0 = $62,500)

• De d uc tib le a mo unt: $100,000

41

E x a m p l e 4 : C a l c u l a t i o n

Ste p 2: de te rmine the c ombine d qua lifie d busine ss inc ome a mount

• Sum o f:
• T

he d e d uc tib le a mo unt fo r e a c h q ua lifie d tra d e o r b usine ss ($150,000 + $100,000 = $250,000), plus

• 20% o f the a g g re g a te a mo unt o r q ua lifie d REIT

d ivid e nd s a nd q ua lifie d p ub lic ly tra d e p a rtne rship inc o me ($10,000 x 20% = $2,000)

• C o mb ine d q ua lifie d b usine ss inc o me a mo unt:

$252,000

42

E x a m p l e 4 : C a l c u l a t i o n

Ste p 3: Ca lc ula te the de duc tio n

• De d uc tio n is e q ua l to the sum o f:
• T

he le sse r o f:

• T

he c o mb ine d q ua lifie d b usine ss inc o me a mo unt o f the ta xp a ye r ($252,000), o r

• 20% o f the e xc e ss o f the ta xp a ye r’ s ta xa b le inc o me fo r the

ye a r o ve r the sum o f a ny ne t c a p ita l g a in p lus q ua lifie d c o o p e ra tive d ivid e nd s ($2,000,000 x 20% = $400,000), plus

• T

he le sse r o f:

• 20% o f the ta xp a ye r’ s q ua lifie d c o o p e ra tive d ivid e nd s

(no ne ), o r

• T

he ta xp a ye r’ s ta xa b le inc o me ($2,000,000), re d uc e d b y ne t c a p ita l g a in (no ne )

• T

he d e d uc tio n is: $252,000

43

E x a m p l e 5 : F a c t s

T a xp a ye r is a n 80% o wne r o f ABC Pa rtne rship , a ma nufa c turing b usine ss with $1,250,000 ne t inc o me , $375,000 o f wa g e s, a nd $2,000,000 o f q ua lifie d p ro p e rty. T a xp a ye r is a 50% o wne r o f XYZ Pa rtne rship , a re ta il b usine ss with $1,000,000 ne t loss a nd $500,000 o f wa g e s. T a xp a ye r re c e ive s $10,000 in d ivid e nd s fro m a REIT .

• T

a xp a ye r’ s filing sta tus: ma rrie d filing jo intly

• T

a xa b le inc o me : $2,000,000

44

E x a m p l e 5 : C a l c u l a t i o n

Ste p 1: de te rmine the de duc tible a mount for ABC Pa rtne rship

• L

e sse r o f:

• 20% o f the ta xp a ye r’ s q ua lifie d b usine ss inc o me with

re sp e c t to the q ua lifie d tra d e o r b usine ss ($1,250,000 x T a xp a ye r’ s 80% sha re x 20% = $200,000) o r

• G re a te r o f
• 50% o f wa g e s ($375,000 x 80% sha re x 50% = $150,000) o r
• 25% o f wa g e s p lus 2.5% o f q ua lifie d p ro p e rty (($375,000 x

80% x 25% = $75,000) + ($2,000,000 x 80% x 2.5% = $40,000) = $115,000)

• De d uc tib le a mo unt: $150,000

45

E x a m p l e 5 : C a l c u l a t i o n

Ste p 1: de te rmine the de duc tible a mount for XYZ Pa rtne rship

• L

e sse r o f:

• 20% o f the ta xp a ye r’ s q ua lifie d b usine ss inc o me with

re sp e c t to the q ua lifie d tra d e o r b usine ss ($- 1,000,000 x T a xp a ye r’ s 50% sha re x 20% = $- 100,000) o r

• G re a te r o f
• 50% o f wa g e s ($500,000 x 50% sha re x 50% = $125,000) o r
• 25% o f wa g e s p lus 2.5% o f q ua lifie d p ro p e rty (($500,000 x

50% x 25% = $62,500) + 0 = $62,500)

• De d uc tib le a mo unt: $- 100,000

46

E x a m p l e 5 : C a l c u l a t i o n

Ste p 2: de te rmine the c ombine d qua lifie d busine ss inc ome a mount

• Sum o f:
• T

he d e d uc tib le a mo unt fo r e a c h q ua lifie d tra d e o r b usine ss ($150,000 + $- 100,000 = $50,000), plus

• 20% o f the a g g re g a te a mo unt o r q ua lifie d REIT

d ivid e nd s a nd q ua lifie d p ub lic ly tra d e p a rtne rship inc o me ($10,000 x 20% = $2,000)

• C o mb ine d q ua lifie d b usine ss inc o me a mo unt:

$52,000

47

E x a m p l e 4 : C a l c u l a t i o n

Ste p 3: Ca lc ula te the de duc tio n

• De d uc tio n is e q ua l to the sum o f:
• T

he le sse r o f:

• T

he c o mb ine d q ua lifie d b usine ss inc o me a mo unt o f the ta xp a ye r ($52,000), o r

• 20% o f the e xc e ss o f the ta xp a ye r’ s ta xa b le inc o me fo r the

ye a r o ve r the sum o f a ny ne t c a p ita l g a in p lus q ua lifie d c o o p e ra tive d ivid e nd s ($2,000,000 x 20% = $400,000), plus

• T

he le sse r o f:

• 20% o f the ta xp a ye r’ s q ua lifie d c o o p e ra tive d ivid e nd s

(no ne ), o r

• T

he ta xp a ye r’ s ta xa b le inc o me ($2,000,000), re d uc e d b y ne t c a p ita l g a in (no ne )

• T

he d e d uc tio n is: $52,000

48

E x a m p l e 6 : F a c t s

T a xp a ye r is a n 80% o wne r o f ABC Pa rtne rship , a ma nufa c turing b usine ss with $1,250,000 ne t loss, $375,000 o f wa g e s, a nd $2,000,000 o f q ua lifie d p ro p e rty. T a xp a ye r is a 50% o wne r o f XYZ Pa rtne rship , a re ta il b usine ss with $1,000,000 ne t loss a nd $500,000 o f wa g e s. T a xp a ye r re c e ive s $10,000 in d ivid e nd s fro m a REIT .

• T

a xp a ye r’ s filing sta tus: ma rrie d filing jo intly

• T

a xa b le inc o me : $2,000,000

49

E x a m p l e 6 : C a l c u l a t i o n

Ste p 1: de te rmine the de duc tible a mount for ABC Pa rtne rship

• L

e sse r o f:

• 20% o f the ta xp a ye r’ s q ua lifie d b usine ss inc o me with

re sp e c t to the q ua lifie d tra d e o r b usine ss ($- 1,250,000 x T a xp a ye r’ s 80% sha re x 20% = $- 200,000) o r

• G re a te r o f
• 50% o f wa g e s ($375,000 x 80% sha re x 50% = $150,000) o r
• 25% o f wa g e s p lus 2.5% o f q ua lifie d p ro p e rty (($375,000 x

80% x 25% = $75,000) + ($2,000,000 x 80% x 2.5% = $40,000) = $115,000)

• De d uc tib le a mo unt: $- 200,000

50

E x a m p l e 6 : C a l c u l a t i o n

Ste p 1: de te rmine the de duc tible a mount for XYZ Pa rtne rship

• L

e sse r o f:

• 20% o f the ta xp a ye r’ s q ua lifie d b usine ss inc o me with

re sp e c t to the q ua lifie d tra d e o r b usine ss ($- 1,000,000 x T a xp a ye r’ s 50% sha re x 20% = $- 100,000) o r

• G re a te r o f
• 50% o f wa g e s ($500,000 x 50% sha re x 50% = $125,000) o r
• 25% o f wa g e s p lus 2.5% o f q ua lifie d p ro p e rty (($500,000 x

50% x 25% = $62,500) + 0 = $62,500)

• De d uc tib le a mo unt: $- 100,000

51

E x a m p l e 6 : C a l c u l a t i o n

Ste p 2: de te rmine the c ombine d qua lifie d busine ss inc ome a mount

• Sum o f:
• T

he d e d uc tib le a mo unt fo r e a c h q ua lifie d tra d e o r b usine ss ($- 200,000 + $- 100,000 = $- 300,000), plus

• 20% o f the a g g re g a te a mo unt o r q ua lifie d REIT

d ivid e nd s a nd q ua lifie d p ub lic ly tra d e p a rtne rship inc o me ($10,000 x 20% = $2,000)

• C o mb ine d q ua lifie d b usine ss inc o me a mo unt:

$- 298,000

52

E x a m p l e 6

• Sinc e the c o mb ine d q ua lifie d b usine ss inc o me is

ne g a tive , a nd the re a re no q ua lifie d c o o p e ra tive d ivid e nd s, T

a xpa ye r ha s no § 199A de duc tion.

53

E x a m p l e 6

• Ac c o rd ing to the sta tute , if the ne t a mo unt o f

q ua lifie d inc o me is a lo ss, it c a rrie s fo rwa rd to the fo llo wing ye a r.

54

Q u e s t i o n s ?

T h a n k y o u !