July 22, 2019

Aggregation as it Relates to Section 199A

By Naglaa Peyton, Staff, Tax & Business Services

Aggregation as it Relates to Section 199A Tax & Business


For tax years after December 31, 2017, The Tax Cuts and Jobs Act allows taxpayers a 20% deduction from Qualified Trade or Business income. Qualified trade or business income is any trade or business income with the exception of: income related to the performance of services as an employee, C Corporation income, or specified service trade or business above certain income thresholds. A specified service trade or business is any trade or business where the principal asset of such trade or business is the reputation or skill of its employees such as lawyers, accountants, physicians. These are known as specified service trade or business (SSTB).

The Section 199 deduction is the lower of 20% of trade or business income or taxable income. Section 199A is also subject to additional limitations such as limiting the deduction to the greater of:

  1. 50% of wages or
  2. 25% of wages plus 2.5% of unadjusted basis of assets. The unadjusted basis is the cost basis immediately after acquiring the assets without adjustment for depreciation, Section 179, or bonus depreciation.


Taxpayers may elect to aggregate two or more trades or businesses to combine the respective wages and unadjusted basis. For each business, taxpayers still have to determine wages, unadjusted basis and qualified income for each business before aggregation. In order to qualify for aggregation, these trades or businesses must meet certain requirements. They must be owned 50% or more by the taxpayer for most of the tax year. For S Corporations, the ownership must be 50% of the outstanding or issued stocks. For partnerships, ownership is calculated as 50% of capital and profit. Attribution rules apply and taxpayers can treat stock or capital owned by children, parents, or spouses as owned by the taxpayer. Further, aggregated trades or businesses must report income in the same tax year.

In addition to the aforementioned requirements, eligible businesses must also satisfy two of the three following requirements:

  1. They share significant centralized resources i.e., accounting, bookkeeping, and information system.
  2. They operate on reliance on each other.
  3. The products or services are the same or offered together.

Once the election is made, it cannot be rescinded, however, more businesses can be added if they meet the requirements. Aggregation must be made on the original return, not an amended return. An exception related to the 2018 tax year is that aggregation can be computed on an individual return or a relevant pass through entity (RPE). If aggregation is made on the RPE, the individuals or the lower tier RPE’s that receive a K-1 from the higher tier RPE must aggregate in the same manner.

Taxpayers must attach a disclosure statement each year with the tax return that contains the names and EIN’s of the aggregated businesses and nature of the businesses. This statement must also include information about any businesses that ceased or are newly added.

Aggregation may increase the 199A deduction. However, in cases where one business has significant wages with no assets and the other has no wages and significant assets, aggregation might not be beneficial. Several scenarios should be analyzed to determine the most beneficial method. It could be by aggregating some trades of businesses, all, or none to get the best results. Also, it should be taken into consideration how these businesses will perform in the future before aggregating them as the election cannot be rescinded.

Marcum Observation

Aggregation may increase the Section 199A deduction. For each taxpayer that has two or more qualified trade or businesses, analysis may be done to determine whether aggregation is beneficial.


Aggregation requires several tests and analysis, but the value added and benefits might outweigh the additional work. Contact your Marcum Tax Advisor for advice and guidance.

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