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A law firm (which is a Schedule C filer) has gross income of…

A law firm (which is...
A law firm (which is a Schedule C filer) has gross income of 1,000,000 & Net Income 0f 280,000. In the tax reform just passed, there is a 20% deduction for law firms that have income less than 315,000. Is that gross income or Net Income & does it apply to Schedule C filers?
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Answered in 15 minutes by:
12/21/2017
Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
Satisfied Customers: 2,741
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
Verified

Hi Scott,

The income limitation is based off Net income distributed to the business owner. This deduction will apply to pass through entities such as LLC's.

"The new bill allows people to deduct up to 20% of the income they get from pass-through businesses. In an apparent effort to stop people from acting like they operate pass-through entities just to get a 20% discount, the Senate version of the bill capped the amount of tax-free income at half of all wages paid to employees. "

___

The limitations: The 20% deduction is capped at the greater of:

(a) 50% of wage income paid to employees and reported on a W-2,

or

(b) 25% of wage income plus 2.5% of the cost of tangible, depreciable property owned by the business.

____

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Hi Scott,

I was looking for the specific wording concerning specified service trade or business that qualify for this income exclusion/deduction.

"The statutory definition of a “specified service trade or business” is “any trade or business involving the performance of services in the fields of health, law, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners, or which involves the performance of services that consist of investing and investment management trading, or dealing in securities, partnership interests, or commodities.” However, denial of the deduction for such income does not apply to joint filers with taxable income of $315,000 ($157,000 for individual filers) or less and is phased in between $315,000 and $415,000 ($207,500 for individual filers). Taxable income of above $415,000 for joint filers and above $207,500 for individual filers does not qualify for any of the deduction if derived from a business providing legal, medical, accounting or other specified services. The deduction is available beginning Jan. 1, 2018, but expires after Dec. 31, 2025.

Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
Satisfied Customers: 2,741
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
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