By Steven J. Oshins, Esq., AEP (Distinguished)

The Tax Cuts and Jobs Act of 2017 included an IRC 199A pass-thru business deduction that has been really nice for a whole lot of business owners. This deduction allows certain business owners to deduct 20% of their Qualified Business Income.

However, not every taxpayer can receive this deduction.

For a married couple with taxable income of no more than $315,000 (adjusted for inflation) and for an unmarried individual with taxable income of no more than $157,500 (adjusted for inflation), there are minimal rules and the 20% federal income tax deduction is available. There is a phase-out of the deduction from $315,000 to $415,000 (adjusted for inflation) for married taxpayers and from $157,500 to $207,500 (adjusted for inflation) for unmarried taxpayers. These figures are for total income, not just based on Qualified Business Income.

For a Specified Service Business, unfortunately no IRC 199A deduction is available for owners whose taxable income exceeds the dollar amounts in the foregoing paragraph. Pursuant to IRC Section 199(A)(d)(2) (which references IRC Section 1202(e)(3)(A), a specified service trade or business means any trade or business involving the performance of services in the fields of: Health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, including investing and investment management, trading, or dealing in securities, partnership interests, or commodities, and 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.

However, for a business that is not considered a Specified Service Business, an IRC 199A deduction is available for owners whose taxable income exceeds the dollar amounts outlined above. However, it’s limited to the greater of (a) 50% of W-2 wages or (b) 25% of W-2 wages plus 2.5% of Qualified Property (certain depreciable property such as buildings and equipment).

Engineering and Architecture Carve-Outs

The engineers and architects must have better lobbyists. Their lobbyists were able to convince the 2017 President and Congress to carve out an exception from the IRC Section 1202(e)(3)(A) definition so that these two classifications of business owners could obtain the IRC Section 199A deduction.

Any argument that engineers and architects should be treated differently than lawyers, accountants and financial planners is illusory.

The President-Elect and the new Congress will be working hard on a 2025 tax act. This is their golden opportunity to fix an injustice that occurred back in 2017. Let’s hope they get it right this time.

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ABOUT THE AUTHOR

Steven J. Oshins, Esq., AEP (Distinguished)  is a member of the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011. He was named one of the 24 “Elite Estate Planning Attorneys” and the “Top Estate Planning Attorney of 2018” by The Wealth Advisor and one of the Top 100 Attorneys in Worth. He is listed in The Best Lawyers in America® which also named him Las Vegas Trusts and Estates/Tax Law Lawyer of the Year in 2012, 2015, 2016, 2018, 2020, 2022 and 2024. He was named the “Estate Planning GOAT (Greatest Of All-Time)” by an internet poll conducted by the Ultimate Estate Planner in March of 2024. He can be reached at 702-341-6000, ext. 2 or soshins@oshins.com. His law firm’s website is www.oshins.com