The partnership salary rule is already a head-scratcher. Once partners feel the full impact of the 2017 Tax Cut and Jobs Act in the spring of 2019, the rule will be confusing as well. The planning is quite complex, but the end payoff – a 20 percent deduction – is very had to pass up. This provision is a new one, so there is very little guidance. It applies to most businesses except C Corporations which pays double taxes. Other business associations are pass-through entities which only pay a single level of income tax. Step One: Organizational Qualifications Section 199A’s intent is clear. The TCJA gives substantial breaks to many individuals, and the government does not want to exclude small businesses. The revised Section 199A allows partnership partners, LLC members, and other pass-through tax entities to claim the 20 percent deduction on all QBI. The Code broadly defines Qualified Business Income as any net income except capital gains. Step Two: Type of Business Qualifications Don’t miss this qualification, because it may sink a number of businesses. To claim the 199A deduction, the entity must not be a Specified Service Trade or Business. SSTBs are the following types of entities:
- Actuarial science,
- Performing arts,
- Athletics, and
- Financial services, investing or investment management.