The Tax Cuts and Jobs Act (TCJA) made significant changes to the tax law, most notably the addition of a new deduction for qualified business income.
Qualified business income includes the ordinary income from sole-proprietorships, single-member LLCs, partnerships, S-corporations, and some rental income. It does not include wages, guaranteed payments, or investment income.
If you do have qualified business income, your eligibility for the deduction depends on the type of business and your personal taxable income. If your taxable income is below $315,000 for married taxpayers filing jointly ($157,500 for other filing statuses), you are eligible for the deduction regardless of your type of business.
If your business is a specified service business, you are not eligible for the deduction if your taxable income is over $415,000 for married taxpayers filing jointly ($207,500 for other filing statuses). A specified service business is a business which involves the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, or brokerage services.
If your business does not fall under the definition of a specified service business, you are eligible for the deduction when your income is over $415,000 (or $207,500), subject to certain limitations. The same is true when your taxable income is in the phase-out range of $315,000 to $415,000 (or $157,500 to $207,500).
If you have any additional questions, please contact Rebecca Bischoff, CPA at 314.576.1350 or firstname.lastname@example.org.