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SPRING 2025 USLAW MAGAZINE
USLAW
Planning to Maximize the Tax Benefits of Internal Revenue Code Section 199A for Members of Pass-Through Entities Robin Pipkin
With the tax filing season upon us, many business owners are gathering needed tax return documents and researching applicable deductions and credits. Owners of pass-through entities can see significant savings on taxes by taking advantage of the deductions described in Section 199A of the Internal Revenue Code. THE LAW The Tax Cuts and Jobs Act enacted into law by Congress in 2017 was designed to stimulate the economy and create jobs by lowering taxes on individuals and businesses. The law provides significant deductions for
Poyner Spruill LLP
pass-through entities such as S corporations and limited liability companies (“LLCs”). The deductions, described in Section 199A of the Internal Revenue Code ("Code"), can result in large tax savings for the entities’ owners. While S corporations and business partnerships are usually not subject to income taxes, the owners must pay taxes on their portions of the partnerships’ income. Each year, owners use data from the Internal Revenue Service Schedules K-1 tax forms to report income or loss on the owners’ income tax returns. These tax benefits of Section 199A are not available to shareholders of C corporations.
Section 199A provides that an owner of a pass-through entity can deduct up to 20% of qualified business income (“QBI”) from its taxes. The deduction is available regardless of whether the person itemizes deductions on the 1040 form or uses the standard deduction. Depending upon several factors, a taxpayer may deduct 20% of QBI, a lesser amount or no amount. For specified service trades or businesses, including accounting firms, brokerage firms, physicians’ offices and law firms, the qualified business income deduction is limited or eliminated if income reaches a certain amount. If a taxpayer has ownership inter-