The Internal Revenue Service (IRS) has issued guidance for pass-through business owners when taking a 20% deduction under a provision of the 2017 tax overhaul law.
The law, called The Tax Cuts and Jobs Act signed in December 2017, has a new provision – Section 199A – that allows owners of sole proprietorships, S corporations or partnerships to deduct up to 20% of the income earned by the business, according to Forbes.
The tax law change will benefit small business owners who pay taxes on their personal tax returns, according to SEMA. Any taxpayers who earn less than $157,500, or $315,000 for a married couple, can deduct 20% of the income they receive via pass-through businesses from their overall taxable income. Taxpayers earning above those amounts must meet certain tests to take the full deduction, such as the amount of W-2 employee wages paid in the business.