New 2018 tax changes – 20% Pass-Through Entity Deduction
The Tax Cuts and Jobs Act, signed into law on December 22, 2017, created a new provision for the owner of certain business entities. The 20% Pass-Through Entities deduction (Sec. 199A deduction) allows owners of Pass-Through Entities to deduct up to 20% of the income earned by the business.
*Pass-Through Entities: Sole Proprietorships, S Corporations, Partnerships, or LLCs.
Limitations on 20% Pass-Through Entity Deduction
However, If your business is a specified service trade or business such as health, law, consulting, and financial services and your taxable income on your personal tax return exceeds certain amounts, you may not have a full 20% deduction. Please see the below chart for ranges of the taxable income and their deduction limits.
| Tax Filing Status |
Full 20% deduction |
Partial deduction |
No deduction |
| Married Couples |
Less then $315,000 |
$315,000 – $415,000 |
Over $415,000 |
| Other Taxpayers |
Less than $157,500 |
$157,500 – $207,500 |
Over $207,500 |
How to maximize your Tax Savings under this provision?
If you are in the field of health and think you may not get a full deduction, or no deduction may be allowed to you, please call us at 410-719-1000. We can provide a thorough review on your business and personal tax situation and build the optimal tax saving strategies customized for you by offering:
- W-2 Review
- K-1 Review
- Advisory Service on Retirement Plan
New 2018 tax changes – 20% Pass-Through Entity Deduction
Example: John and Jennifer file a joint return on which they report taxable income of $415,000. John is a medical doctor and has an income of $300,000 from his business which is an S-Corporation.
|
Without tax planning |
With tax planning |
| Income from S-Corporation |
$300,000 |
$200,000 |
| Taxable income |
$415,000 |
$315,000 |
| Amount of 20% pass-through entity deduction |
$0 |
$40,000 |
| Federal tax savings |
0 |
$9,600 |
*Disclaimer: This example is provided only to illustrate a tax saving effect with the application of the 20% Pass-Through Entity Deduction. Tax saving amount in the above table is not final and does not reflect other factors that may change the tax calculation.
