- [Narrator] The best thing to happen to taxes
in recent years for many business owners
is the new Pass-Through Tax Deduction
that came as part of the 2017 Tax Cuts and Jobs Act.
This new provision provides a 20% deduction
on qualified business income.
This deduction is taken on the individual's tax return
from taxable income and can result in the flow through
of income from a sole proprietorship,
or a partnership, or an S-Corp.
So, this is a great way
to reduce your overall taxable income,
but you have to meet certain criteria.
In particular, you have to be a qualified business
and you have to be in a qualified type of business
in order to get this pass-through tax deduction.
The pass-through tax deduction was setup
to benefit manufacturers in particular.
So in general if you're in a trade,
if you're providing a service, you're probably not going
to be eligible for the pass-through deduction.
It varies a little bit so you'll want to check
with your accountant to be sure, but in general,
if you're say a financial advisor
or an engineer or an architect,
you're probably not going to be able
to take this kind of a write off.
On the other hand, if you're manufacturing widgets,
there's a good chance that you probably will be able
to take this particular tax deduction.
Now of course, that'll likely vary over time
so you want to check back on this periodically.
In general, one key point applies though.
There's a limitation for the phase out
based on your W-2 wages and the taxable income
of the individual.
When the individual's taxable income exceeds $157,500,
that becomes the threshold amount
and so we start having that tax deduction,
that 20% pass-through disallowed over time.
It begins to get phased out.
Similarly, if we have household or joint filings,
married filing jointly, then we have higher levels.
In the case of the married filing jointly, for example,
it's $315 thousand.
So you want to be aware of this.
It's at a relatively high level,
but nonetheless it's a great way
to reduce your overall tax liability.
Now there's still a number of questions
on how this deduction will be applied
and more guidance is needed, but this is something
that you should definitely talk to your accountant
or tax preparer about.