Section 199A Pass-Through Deduction and the Magic Number

By John G. Hodnette

The 2017 Tax Act includes a new deduction for qualifying pass-through entities codified as Section 199A.  Taxpayers other than corporations operating a business are generally allowed the deduction, subject to complex limitations, which require thoughtful planning to ensure taxpayers fully benefit.  Certain classes of businesses deemed a “specified service trade or business” are subject to severe restrictions.  However, for taxpayers not operating a specified service trade or business, use of the magic number equation explained below provides a simple and effective approach to maximize the deduction.

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