199 Cap A- February 1 2019Marissa Adler
Hello fellow taxpayers.
This is a short, LOL! but very important email.
I am repeatedly asked about the 199 Cap A by folks that have businesses; even though I have mentioned this subject before it bears repeating.
One of the most complicated aspects of the tax law is the new “20% Qualified Business Deduction”, also referred to “Section 199 Cap A” rule. Without getting too technical, this section applies to all who are self-employed, an owner of an LLC, shareholder in an S-corp or partner in a partnership. It also applies to those that are passive investors in a publically traded partnership for which you receive a Schedule K-1. It does not apply to C-corporations.
This law allows a possible added deduction on your individual return depending on the type of business, your overall income levels and if the actual business mentioned above is profitable. That being said, to be able to take advantage of the deduction or to be able to carry the deduction to a future year (if there is a loss), specific numbers (and there are three of them) HAVE to be included on the K-1 that you receive from the partnership or S-corporation. Schedule C filers do not receive a K-1, so this part does not pertain to you.
If the K-1 is missing this information, you lose out on the deduction. The IRS, when they issued the August and January regulations, indicated that there are no exceptions. Your tax preparer cannot compute the deduction for you if that information is not there. If I prepare your S-corp or partnership return, I can guarantee that this information will be included in the preparation of your tax return.
On a K-1 issued fr1om a partnership, the required information will be noted on line 20. On a K-1 issued from an S-corporation, it will be indicated on line 17. In a publically traded partnership in which you have invested in, I hope that they provide you with this information. However, most of you own small percentages in these investors so that the numbers will be low. However, if there is a profit, you could lose out on this deduction.
I will not get technical on this point, but it is the most technical and, IMHO, the hardest tax law to come out of Congress in all the years that I have been in this business; and I am now approaching my 40th anniversary this July). Rest assured, I am up to the task hence all the education and dollars spent learning about this law.
So until next time
Jeffrey “The 20% Qualified Business Deduction Guru” Schneider