Sec 199A QBI deduction and the W-2 income

[SaraEA]

I learned some interesting wrinkles from an NAEA webinar on the new Sect 199A QBI deduction.  If the taxpayer is in a specified service trade or business, or if not in a SSTB is above the ceiling ($207k or so, $415 MFJ), QBI is limited by the lower of two tests--50% of wages paid or 25% of wages plus 2.5% unadjusted basis of qualifying property.  (Yes, non SSTB businesses may still get something if above the ceiling, not so for SSBT).  However, if W2s are filed late with SSA, wages are considered to be ZERO for the QBI deduction calculations.  If W2s are timely filed but corrected after 60 (???) days, the lower amount is used in the calcs.  So if the original SSA report was lower, but it was wrong, that number still counts.

This won't affect your client for 2017, but for this year forward it might just make some of these low-paid S corp shareholders decide to pay themselves better or lose that 20% deduction they are drooling over.  And just maybe it will put an end to the laggards who bring their payroll info in when it suits them.  Pretty clever.

[JohnH]

This guy has some interesting math shortcuts for maximizing the benefit of the QBI deduction.  Haven't actually run his number yet, but he seems to know his stuff and he's interesting to read.  He also had mentioned the late w2 issue when he wrote this back on Dec 28, 2017

https://www.forbes.com/sites/peterjreilly/2017/12/28/how-much-owner-salary-should-s-corp-pay-to-maximize-qualified-income-deduction/#5a1f8d6372ef

[Max W]

Here is a much more comprehensive web site.

https://www.watsoncpagroup.com/section-199a-deduction/

[JohnH]

Wow. That is comprehensive.  Lots of excellent info in there, plus creative writing.  (Probably the first time I've ever seen a tax discussion say something to the effect that "If taxable income is greater than $XXX, then you are hosed.")     This is definitely a link to be bookmarked, and its clear they plan to update the info.  Thanks, Max