199(A) Case Study #1

[This post starts a multi-part series on the new 199(A) deduction.  Be sure and check out our blog during the second week of each month to see the next case study. If you are looking for the basics of what this deduction is, please check out this post.]

 Today’s case study is going to look at how marital status impacts the 199(A) deduction for physicians who earn their income as 1099 contractors.

Facts:

  • Taxpayer #1 is single with locums income of $250,000.
  • Taxpayer #2 is married with locums income of $250,000. Her spouse teaches and earns income of $45,000.
  • Both taxpayers have chosen to forgo retirement contributions while they pay down their student loans.
  • They both take the standard deduction.

Implications:

Taxpayer #1 is not eligible for the 199(A) deduction.  Their taxable income is $226,766, which is higher than the $207,500 needed to qualify with a specified service business.

Taxpayer #2 will be eligible for the 199(A) deduction.  Since she is filing a joint return, the taxable income limit of the phase-out range is $315,000-$415,000.  Their taxable income of $259,766 is below that, and they will get a 199(A) deduction of $50,000.  This is 20% of the qualified business income (her locums income).

Takeaway:

Filing status can greatly impact the available 199(A) deduction due to the different phase-out ranges.

 

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