The Internal Revenue Service recently clarified the new section of tax code regarding the qualified business income deduction passed as part of the The Tax Cuts and Jobs Act (TCJA).
While the language of the new law has caused business owners and tax professionals some confusion, the newly published proposed regulations elucidate developments when it comes to the treatment of investment income, what to account for when determining qualified business income as generated by partnerships, S-corporations, and limited liability corporations (LLCs), and more, according to the National Association of Home Builders.
A good rule of thumb to use when determining what to include in QBI is that any income already receiving preferential tax treatment (i.e. deduction or preferential rate) probably does not increase one’s QBI and, by extension, their 199A deduction. The IRS’ reasoning being that income already shielded from taxation at the highest applicable rate should not receive a second tax break.
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