Tax Reform and the Pass-Through Deduction: How You Can Benefit Now

Pass-Through Deduction and Tax Reform

When the Tax Cuts and Jobs Act (TCJA) was signed into law in December 2017, it included a deduction for pass-through business owners. Known as Section 199A, it permits up to a 20% deduction on qualified business income for owners of sole proprietorships, S corporations, or partnerships.

At Acadian Industrial Textiles, we know that many of our customers may qualify for this deduction, and we’re here to point you towards resources that will help you make the most of it.

The Basics

This deduction is available to any taxpayer other than a corporation, which includes individual owners of sole proprietorships, rental properties, S corporations, or partnerships, as well as an S corporation, partnership, or trust that owns an interest in a pass-through entity.

According to Forbes, the deduction is equal to 20% of the taxpayer’s qualified business income and has the following limitations:

  • 50% of the W-2 wages with respect to the qualified trade or business, or
  • The sum of 25% of the W-2 wages with respect to the qualified trade or business, plus 2.5% of the unadjusted basis immediately after acquisition of all qualified property.

The resulting deduction is also subject to a second limitation equal to 20% of the excess of the taxable income for the year, over the sum of net capital gain.

Read this Forbes article for a more detailed look at Section 199A and how it relates to your business. This deduction opens up new opportunities for many business owners, and we recommend finding a tax professional who can help you navigate all the regulations and qualifications. We’ll keep you updated as more information about the deduction becomes available.