May 20, 2019

199A Deduction and New Form 8995/8995-A

By Renee M. Kwakye, Senior, Tax & Business Services

Related Service Tax & Business

199A Deduction and New Form 8995/8995-A Tax & Business

The Section 199A deduction was enacted as part of the Tax Cuts and Jobs Act of 2017. Section 199A allows taxpayers, other than corporations, a deduction equal to 20% of qualified business income (QBI) earned in a qualified trade or business, subject to certain adjustments and limitations.

The QBI deduction is allowed at the partner, S Corporation shareholder, estate and trust, or sole proprietor level for tax years beginning after December 31, 2017. (Presently, the QBI deduction is scheduled to terminate for tax years after December 31, 2025). For the 2018 tax year, taxpayers must calculate the deduction amount on a worksheet, filed separately from the taxpayer’s return.

On April 15, 2019, the IRS released a draft of new Form 8995, Qualified Business Income Deduction Simplified Computation, and Form 8995-A, Qualified Business Income Deduction. Form 8995-A is the long form for those taxpayers not eligible for short Form 8995. For the 2019 tax year, Form 8995 or 8995-A will be required to be attached to the taxpayer’s return and submitted to the IRS.

Form 8995 is required for taxpayers who (1) have qualified business income, qualified REIT dividends, or qualified PTP income; (2) have taxable income that does not exceed the threshold amount, and (3) are not patrons of specified agricultural cooperatives. All other taxpayers with QBI must use form 8995-A.

Form 8995-Ais six pages with four parts and four schedules:

  • Part I: Trade, Business, or Aggregation Information;
  • Part II: Determine Your Adjusted Qualified Business Income;
  • Part III: Phased-in Reduction;
  • Part IV: Determine Your Qualified Business Income Deduction;
  • Schedule A: Specified Service Trades or Businesses (non-publicly and publicly traded partnership information);
  • Schedule B: Aggregation of Business Operations;
  • Schedule C: calculates the qualified business net loss and the carryforward amount for each of the taxpayer’s trades or businesses or the aggregation of trades or businesses;
  • Schedule D: Special Rules for Patrons of Agricultural or Horticultural Cooperatives (COOP).

Marcum Observation

Be prepared for additional forms for the 2019 tax year and instructions as they relate to the section 199A deduction. For more information on draft forms, please reference the following:
https://www.irs.gov/pub/irs-dft/f8995–dft.pdf
https://www.irs.gov/pub/irs-dft/f8995a–dft.pdf