So as we discussed in the first installment in this series, under the 2017 federal tax reform, many professionals are initially ineligible for the new deduction on pass-thru business entity income because they are not considered a “qualified trade or business” under the new law.  Professionals are generally ineligible for the deduction either because their profession is initially excluded (for example, attorneys and accountants) as a “qualified trade or business,” or because the principal asset of the trade or business is the reputation or skill of one or more of its employees or owners.

However, … what Congress takes away Congress partially gives back.  For a professional taxpayer whose annual taxable income is less than $157,500  for an individual filer or $315,000 for joint filers, the professional can claim the full deduction on pass-thru business entity income (20% of “qualified business income” under one approach) notwithstanding that he or she does not satisfy the definition of a “qualified trade or business.”  For individual professional taxfilers between $157,500 and $207,500 in annual taxable income the new deduction is phased out.  Likewise, for professionals filing joint tax returns, the new deduction is phased out for annual taxable income between $315,000 and $415,000.  For a professional taxpayer whose annual taxable income is more than $207,500 for an individual filer or more than $415,000 for joint filers, these professionals are generally ineligible to claim the new deduction.

However, under the 2017 federal tax reform two types of professionals, engineers and architects, qualify for the new deduction on pass-thru business entity income regardless of their annual taxable income.

To learn more about the eligibility of professionals to claim the new deduction on pass-thru business entity income, as well as to better understand what is meant by a pass-thru business entity, please read the first installment in this series.  You can’t miss!!

[Legal advice not only involves an understanding of the law, but the application of the law to a particular set of circumstances or facts.  Blog posts are imperfect tools to address the subtlety and exceptions of the law that may apply in particular situations.  As a result, the information in this blog post does not represent legal advice.  If you are in a situation where you need or desire legal advice, we would be happy to help.  Call Paul at 608-358-9413 to set-up your no-charge initial consultation.]