Knowledge Base
Print

Calculating the Qualified Business Income Deduction

By Jason Watson, CPA
Posted Wednesday, November 1, 2023

The basic Section 199A pass-through deduction is 20% of net qualified business income, which is huge. If you make $200,000, the deduction is $40,000 times your marginal tax rate of 24% which equals $9,600 in your pocket. Who says Obamacare isn’t affordable now?

Here is the exact code-

(2) DETERMINATION OF DEDUCTIBLE AMOUNT FOR EACH TRADE OR BUSINESS. The amount determined under this paragraph with respect to any qualified trade or business is the lesser of-

(A) 20 percent of the taxpayer’s qualified business income with respect to the qualified trade or business, or

(B) the greater of-

(i) 50 percent of the W-2 wages with respect to the qualified trade or business, or

(ii) the sum of 25 percent of the W-2 wages with respect to the qualified trade or business, plus 2.5 percent of the unadjusted basis immediately after acquisition of all qualified property.

There are some devils in the details of course. The best way is to show some examples which we do later in the following chapter. For now, let’s define some terms especially the specified service trade or business designation.

Taxpayer’s Comprehensive Guide to LLCs and S Corps 2023-2024 Edition

LLC's and S Corps bookTaxpayer’s Comprehensive Guide to LLCs and S Corps 2023-2024 Edition This KB article is an excerpt from our 420+ page book (some picture pages, but no scatch and sniff) which is available in paperback from Amazon, as an eBook for Kindle and as a PDF from ClickBank. We used to publish with iTunes and Nook, but keeping up with two different formats was brutal. You can cruise through these KB articles online, click on the fancy buttons below or visit our webpage which provides more information.

Taxpayer’s Comprehensive Guide to LLCs and S Corps

Learn the latest tax updates and insights for small business owners in the 2023-2024 Edition.

LLC's and S Corps book

Kindle - Taxpayer's Comprehensive Guide to LLCs and S Corps

Learn the latest tax updates and insights for small business owners in the 2023-2024 Edition.

PDF - Taxpayer's Comprehensive Guide to LLCs and S Corps

Read about tax updates for small business owners in the 2023-2024 Edition, in an accessible PDF!

Wanna Talk About Your Small Business?

Please use the form below to tell us a little about yourself, and what you have going on with your small business or 1099 contractor gig. WCG CPAs & Advisors are small business CPAs, tax professionals and consultants, and we look forward to talking to you!

The tax advisors and business consultants at WCG are not salespeople; we are not putting lipstick on a pig expecting you to love it. Our job remains being professionally detached, giving you information and letting you decide within our ethical guidelines and your risk profiles.

We see far too many crazy schemes and half-baked ideas from attorneys and wealth managers. In some cases, they are good ideas. In most cases, all the entities, layering and mixed ownership is only the illusion of precision. As Chris Rock says, just because you can drive your car with your feet doesn’t make it a good idea. In other words, let’s not automatically convert “you can” into “you must.” Yes, it is fun to brag about how complicated your world is at cocktail parties, but let’s not unnecessarily complicate it for the bragging rights.

Let’s chat so you can be smart about it.

We typically schedule a 20-minute complimentary quick chat with one of our Partners or Senior Tax Professionals to determine if we are a good fit for each other, and how an engagement with our team looks. Tax returns only? Business advisory? Tax prep, and more importantly tax strategy and planning?

Should we need to schedule an additional consultation, our fee is $250 for 40 minutes. Fun! If we decide to press forward with a Business Advisory or Tax Patrol Services engagement, we will credit the consultation fee towards those services.

Text WCG Offices

Need to get in touch through a quick text?  We’ll respond back as soon as we can.

Call Our Amazing Team

If you need to speak to someone, we’re good listeners!  Give us a call and we’ll help you out!

Chat With a Tax Pro

Taxes are complicated.  We make them simple.  Get in touch with a pro here at WCG!

Table of Contents