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.

 

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.

 

199A – The Basics

In last year’s Tax Cuts and Jobs Act, Congress lowered the corporate tax rate from 35% to 21%.  To level the playing field for pass-through businesses, they created a new deduction.  The goal of this post is to explain the basics of this deduction, so that you can learn how it may apply in your situation. In upcoming posts, we will look at the details of some real cases to help you understand how the different elements of 199A may affect you. Continue reading

QuickBooks – which service should I use?

In this month’s video, I shared some strategies for getting organized with your tax records.  One of the most common groups of clients that seem to have trouble getting and staying organized are those that have 1099 income.  The main reason for this is that some additional deductions are now available to you.  If you find yourself in that situation, I may have a solution for you.  QuickBooks offers a couple of services that help you track your income and expenses. Continue reading

Getting Organized [Video]

With back to school, fall sports schedules, and life in general, you might feel like you’re sitting in the middle of a merry-go-round and can’t get off.  While we can’t help pack Susie’s lunch or take Billy to football practice, we can help you get your tax records organized.

 

She gives you some tips to help get your tax records organized now, and keep them organized, so that when year end rolls around, you can enjoy Christmas break with the kids instead of shuffling through paperwork for tax season.

And Baby Makes Three

Whenever our clients are expecting their first child, they often come to me wondering what impact this will have on their taxes.  As with most things in the tax world, the answer is, “It depends.”  There are a few tax items that this little bundle of joy will impact, but much of that has to do with your income level and other aspects of your specific situation. Continue reading

More IRS Notices

In this month’s video, I described two of the most common IRS notices, the CP2000 and CP501.  While these two are the most often received, they are far from the only notices sent.  The IRS has a whole host of letters that they send depending on the exact situation.  To help you be better prepared for the dreaded letter that may show up in your mailbox, let’s look at some other IRS notices. Continue reading