Questions regarding 199A Rules

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Chi312
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Joined: Sat Oct 13, 2018 10:14 am

Questions regarding 199A Rules

Post by Chi312 » Sat Oct 13, 2018 10:24 am

First off long time lurker this is my first post. Have some questions in regards to 199A

I am in a specialized service business. This was my first year making significant money I am set up as a sole proprietor. No w2 job or wages to myself and no employees. I did run the business for half of last year and filed taxes as sole proprietor. Can I still set up an S Corp or is it too late into the year? Any other suggestions to minimize taxes? I am right around the $207,500 threshold right now. Single un-married. Feels like I am getting killed on taxes.

If I show a net profit of $200,000 how much QBI deduction am I allowed to take?

What if I show a net profit of $220,000 and put $13,000 in a Solo 401k bringing my net income below the threshold down to $207,000?

Any advice appreciated. Thank you

Chi312
Posts: 3
Joined: Sat Oct 13, 2018 10:14 am

Re: Questions regarding 199A Rules

Post by Chi312 » Sat Oct 13, 2018 8:42 pm

I talked to my attorney briefly and he said we could set up the S Corp and that we can get extensions to make it valid for 2018.

I am still very confused with the 199A rules though. If I come in between $157,500 and $207,500 net income as a specialized service business with no w2 do I still get any 199a deduction?

Thank you

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Questions regarding 199A Rules

Post by Spirit Rider » Sat Oct 13, 2018 10:56 pm

The Section 199A QBI deduction threshold is based on your taxable income. Your actual QBI would be the lesser of your net self-employment earnings (bussiness - 1/2 SE tax) and your taxable Income.

For example, with a net profit of $200K, your net self-employment earnings would be $189,361. With $8K Self-employed health insurance deduction, $12K standard deduction and $11,861 in a one-participant 401k contribution. Not counting any other income or adjustments, your taxable income would be $157,500 x 20% = $31,500 QBI deduction.

An S-Corp is likely to result in higher taxes not lower. While you might save $3K -$4K in FICA taxes, your QBI deduction may be about $10K lower

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FiveK
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Re: Questions regarding 199A Rules

Post by FiveK » Sat Oct 13, 2018 11:55 pm

Chi312 wrote:
Sat Oct 13, 2018 8:42 pm
I am still very confused with the 199A rules though. If I come in between $157,500 and $207,500 net income as a specialized service business with no w2 do I still get any 199a deduction?
Yes, that income range is a phase-out and not a cliff.

You can enter your numbers in the personal finance toolbox spreadsheet and it will do those calculations.

Chi312
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Joined: Sat Oct 13, 2018 10:14 am

Re: Questions regarding 199A Rules

Post by Chi312 » Sun Oct 14, 2018 12:34 pm

Appreciate the answers. I also found out that being a Realtor is actually excluded from Specialized Service Business. Thanks NAR!

That is very helpful with the phase in example for $200,000. The more I research I do not think S Corp makes the most sense right now.

What I am still a bit confused with is if I come out at $220,000 net income with no w2 is that still a partial deduction not cliff? Or would I definitely want to do a Solo 401k, etc. to shelter some income and keep it under $207,500?

Thanks

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FiveK
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Re: Questions regarding 199A Rules

Post by FiveK » Sun Oct 14, 2018 12:44 pm

Chi312 wrote:
Sun Oct 14, 2018 12:34 pm
What I am still a bit confused with is if I come out at $220,000 net income with no w2 is that still a partial deduction not cliff? Or would I definitely want to do a Solo 401k, etc. to shelter some income and keep it under $207,500?
Depends on what you mean by "net income". If that is your Schedule C net income, you will get ~$1.9K 199A deduction.

If that is your taxable income (after subtracting 1/2 SE tax and $12K standard deduction) you will get no 199A deduction.

Have you tried the spreadsheet suggested earlier?

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