Tax Reform: Pass-through Deduction Flowchart under the New Tax Code

The Tax Cuts & Jobs Act has introduced a new deduction for pass- through entities. This deduction may have one of the largest impacts on taxpayers of any provision in tax reform. This deduction may also be one of the most complicated provisions in the law.

The deduction is generally 20 percent of qualified business income of any pass-through trade or business. This deduction will have significant impact on business owners that operate as partnerships, S Corporations, LLCs (single or multi-member) or sole proprietors. Complicated limitations and complex rules and definitions apply to each situation. This new law also brings with it many opportunities to plan for what can be a very lucrative deduction.

The flowchart, is a guide to help navigate the general rules.It is meant to be a guide, and should not be used without consultation with a tax professional on how this code section will apply to your individual situation. Contact a member of Yeo & Yeo’s Tax Services Group for information on how we can help.

Visit Yeo & Yeo’s Tax Center for additional resources on the new Tax Cuts and Jobs Act.