Using Section 199A how much can I deduct with a pass-through? Here is Dr Bart with his “bit” to answer this question
“Section 199A of the Tax Law. This has created a tremendous amount of concern and problems. This is, again, if you want to look at it, take a look at the final regulations in Section ... what do you call it? Section 199A. I've got about three slides on this subject because it's so important.
I mentioned earlier in this program that on January 18th of 2019, the IRS came out and they came out with final regulations. They were in excess of 200 pages long. So let me go ahead and talk about some of these because it affects you when you file returns. Now there's a special form that you file for this.
By the way, this form applies to, make sure we understand it. Look on slide 22 on the bottom left-hand corner, it says sole proprietorship. So schedule Cs, schedule C, as in cat, can apply to this 20%. Partnerships, and not publicly held partnerships, we're talking private partnerships, flow through to the individual owner, subchapter S-corporations, and obviously LLCs that do not elect a C-corporation. Okay?
Remember there's no, and it's hard sometimes for clients to realize this, there's no tax return for an LLC. There's automatically, by the way, if it's a single person LLC, it defaults to a schedule C, it's called a disregarded entity. And matter of fact, several States have passed laws that you're not going to have the protection of a corporation if you get sued and you're only a single owner. So in many of these States, we are converting single ownership LLCs where there's at least two people. Okay? So they can file a partnership tax return.
So all these types of tax returns, you might say, fall back on the individual's personal 1040 tax return. That's where the pass-through is calculated. There's a form to calculate it. Now the form is important because it categorizes different kinds of entities, different kinds of businesses, I should say.
I want you to look at the second paragraph on slide 22. It says there are phase-out limits that apply to professional services. Okay? What's a professional service? Lawyers, doctors, consultants, these are people who sell a service. So most people who sell a service. Okay? They can take it out as long as they're filing a joint tax return and their incomes under $315,000. Now the $157,500 and the $315,000 on slide 22 are the 2018 tax rates. Okay? Watch that these rates are supposed to increase each year. Okay? I don't know whether they, at the time of this program, I do not have the 2019 rates. Okay? So I'm using the 2018 rates as a guide.
If you have clients that have, and this is by the way, taxable income that's under 315,000 on a joint tax return or under 157, 500 for individual tax return, don't make it very complicated. It's pretty simple. Take the profits from their business, the profits from their business, 20%. So if a business makes a profit of $100,000, you deduct $20,000 and pay taxes on $80,000 of profits.”
