By Jason Watson, CPA
Posted Wednesday, October 20, 2021
Hopefully you are still with us and not in the fetal position sucking your thumb. To hammer these points home, the Section 199A won’t help everyone and the S corporation still has some shine (although perhaps less in some situations) as an overall tax reduction mechanism.
Here is a summary of the previous Section 199A side-by-side comparisons-
| Business | Status* | Biz Income |
Other Income |
Health Ins. |
199A Benefit |
S Corp Savings |
| Consultant | Married | 100,000 | 1,496 | 8,089 | ||
| Consultant | Married | 100,000 | 60,000 | 2,742 | 6,152 | |
| Consultant | Married | 100,000 | 1,496 | 7,518 | ||
| Consultant | Married | 100,000 | 10,000 | 1,514 | 9,786 | |
| Retailer | Married | 200,000 | 5,983 | 7,379 | ||
| Retailer | Married | 200,000 | 100,000 | 5,983 | 5,715 | |
| Retailer | Single | 250,000 | 10,906 | 18,551 | ||
| Retailer | Married | 250,000 | 7,479 | 5,329 | ||
| Retailer | Single | 250,000 | 10,906 | 18,551 | ||
| Attorney | Single | 250,000 | 0 | 7,645 | ||
| Surgeon | Single | 600,000 | 0 | 8,133 | ||
| Goat Herder | Single | 600,000 | 28,044 | 36,177 |
The far right column, S Corp Savings, is your net savings after forfeiting a part of the Section 199A deduction. The deduction reduction if you will.
American Jobs and Closing Tax Loopholes Act of 2010 (HR 4213)
Here is some chin-scratching fodder for your day. Back in 2010, the House created a bill that would disqualify small professional service S corporations (attorneys, doctors, consultants, etc.) from benefiting from the S Corp “loophole.” Thankfully the Senate saw this as discrimination since non-professional service businesses (construction, retailers, manufacturers, etc.) would still benefit from the “loophole.” The bill was rejected naturally.
Tax Cuts & Jobs Act of 2017
It appears specified service trades or businesses dodged another bullet. There was chatter similar to 2010 but eventually it gave way. Yes, some of the tax breaks disappear for attorneys, doctors, accountants and anyone else whose reputation or skill is the material income producing factor. However, it could have been way worse. Instead the crummy laws of 2017 and earlier are simply the high-water mark, and if you are phased out of the Section 199A deduction you are no worse off. Yeah, it doesn’t make you feel any better.
Thank you for hanging in there!
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