If you operate an specified service trade or business and your taxable income is more than $207,500 (single) or $415,000 (married, filing jointly), your Section 199A deduction is easy to compute. It’s zero.
This specified service trade or business group includes any trade or business:
If you were not in one of the named groups above, you are not alone and you may be concerned about being in a reputation or skill specified service business. Many businesses depend on reputation and/or skill for success like the National Association of Realtors who believed their real estate agents fell into this category.
However, The IRS has come to the rescue by regulating the draconian reputation and/or skill provision down to almost nothing. The reputation and/or skill out-of-favor specified service business includes you if the following applies:
To further explain this here is an example:
Example. Delon is a well-known chef and the sole owner of multiple restaurants, each of which is a single-member LLC—disregarded tax entities that are taxed as proprietorships. Due to Delon's skill and reputation as a chef, he receives an endorsement fee of $500,000 for the use of his name on a line of cooking utensils and cookware.
Results. Delon’s restaurant business is not an out-of-favor business, but his endorsement fee is an out-of-favor specified service business.
If you have questions about how the law will treat your business income for the new Section 199A 20 percent tax deduction, please give us a call, and we’ll examine your situation.
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Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances.
Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.