The following article was published by the IRS.

partnership-2750197_1280Eligible taxpayers may now deduct up to 20 percent of certain business income from domestic businesses operated as sole proprietorships or through partnerships, S corporations, trusts, and estates. The deduction may also be claimed on certain dividends. Eligible taxpayers can claim the deduction for the first time on the 2018 federal income tax return they file in 2019. This provision is the result of tax reform legislation passed in December 2017.

Here are some things business owners should know about this deduction:

  • The deduction applies to qualified:

– Business income
– Real estate investment trust dividends
– Publicly traded partnership income

  • Qualified business income is the net amount of qualified items of income, gain, deduction and loss connected to a qualified U.S. trade or business. Only items included in taxable income are counted.
  • The deduction is available to eligible taxpayers, whether they itemize their deductions on Schedule A or take the standard deduction.
  • The deduction is generally equal to the lesser of these two amounts:

– Twenty percent of qualified business income plus 20 percent of qualified real estate investment trust dividends and qualified publicly traded partnership income.
– Twenty percent of taxable income computed before the qualified business income deduction minus net capital gains.

  • For taxpayers with taxable income computed before the qualified business income deduction that exceeds $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers, the deduction may be subject to additional limitations or exceptions. These are based on the type of trade or business, the taxpayer’s taxable income, the amount of W-2 wages paid by the qualified trade or business, and the unadjusted basis immediately after acquisition of qualified property held by the trade or business.
  • Income earned through a C corporation or by providing services as an employee is not eligible for the deduction.
  • Taxpayers may rely on the rules in the proposed regulations until final regulations appear in the Federal Register.