Twenty Percent Reduction For Business Owners

[Christian]

On the ATX Sec 199A worksheet is a box for qualified property a point on which I lack a complete understanding of. Can someone advise exactly what that refers to ?

[EricF]

Qualified property comes into play when the taxpayer's taxable income is over the threshold of $315k on a joint return or $157.5k on a separate return, and the deduction becomes limited to a percentage of W-2 wages or a percentage of qualified property plus a percentage of W-2 wages.

Qualified property is the unadjusted basis (before any depreciation or Sec. 179 deduction) of depreciable property in use at the end of the taxable year.  Fixed assets used in the computation are those whose depreciable life is still in effect.  For this purpose, an asset 10 years old or less is considered to still be in its depreciable life.

There are special rules for assets that came into the business through a 1031 exchange or where there is a Section 743 basis stepup in a partnership.  Most taxpayers don't have to worry about the special rules.

[Christian]

Clearly none of my clients need loose sleep over this. 

[BLACK BART]

18 hours ago, Christian said:

Clearly none of my clients need loose sleep over this. 

Nor do mine regarding income, but I wonder about 1099 guys who work construction jobs and some really are employees but the general contractor gives everybody a 1099 and rarely do you see a W-2.  If a guy's a bricklayer I assume he'd be okay as a businessman, but if it's just a general gofer/picker-up of waste materials, then wouldn't he really be an employee?  Probably won't make any difference since the 1099's almost universal in the trades -- the new law won't change that.  I'll probably just deem him a business of some sort, but wonder what IRS take on it would be? 

Also wonder about IRS's rule excluding "those involving the performance of services in law, accounting, financial services...or where the business's principal asset is the reputation or skill of one or more owners or employees." Could this exclude, say, specialized goods or a skill where the owner is one hell of a cake baker or may be known as the best hunting guide since Daniel Boone?  Or is that a bridge too far and I'm worrying about nothing?

[EricF]

If you're under the taxable income thresholds and have a business that has regular and continuous activity, you have a qualified business and can take the 20% deduction.

The exclusion for specified businesses is the same under those thresholds, but for specified businesses the 20% deduction can phase completely out above those thresholds.

Thankfully, IRS in the regulations interpret the restriction for where the principal asset is the reputation or skill of one or more owners or employees was limited to businesses that receive fees, compensation, or other income for endorsing products or services, or businesses in which a person licenses or receives fees, compensation, or other income for the use of an individual's image, likeness, name, signature, voice, trademark, or any other symbols associated with the individual's identity, or businesses receiving fees, compensation, or other income for appearing at an event or on radio, television, or another media format.

[SaraEA]

Great explanations Eric.  In other words, when Oprah endorses Weight Watchers or Michael Jordan trots out a new line of Nikes, they are being paid because they are Oprah and Jordan and thus are a specified service business.  No one is going to pay you or me to do endorsements because we're not famous enough (although by the end of this tax season we may be infamous to our clients).