199(A) Case Study #2

[This post continues 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 the 199(A) deduction is different for a dual-physician couple than a single-income family.

Facts:

  • Taxpayer #1 is married with locums income of $250,000. Her spouse does not work.
  • Taxpayer #2 is married with locums income of $250,000. Her spouse is also a physician and earns $210,000 as a W-2 employee.
  • Both taxpayers have chosen to forgo retirement contributions while they pay down their student loans.
  • They both take the standard deduction.

Implications:

Taxpayer #1 will be eligible for the 199(A) deduction.  This will be calculated on taxable income of $214,766, since it is less than Qualified Business Income.  The deduction will be $42,953.

Taxpayer #2 will not be eligible for the 199(A) deduction.  Since the second spouse earns income as well, their joint taxable income is over the $415,000 phase-out limit, which applies for qualified business income from a specified service.

Takeaway:

Other sources of income, including spousal wages or investment income, can push you over the phase-out limits, since they are based on overall taxable income.  When applying the phase-out limits, remember that these are for your taxable income, not your qualified business income.

 

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