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- Does My Business Qualify for Section 199a (Qualified Business Income Deduction)?
In the growing American economy, small businesses are vital to ensure stability and continued success. To achieve that end, the government rolled out a new tax deduction available for business owners known as the Qualified Business Income Deduction, or Section 199a deduction. Essentially, the way to determine whether or not a taxpayer qualifies for this deduction is to determine whether or not their business meets a few criteria:
- Their income does not exceed $157,500 for a single filer or $315,000 for a married couple filing jointly
- They are not an employee of the business
- Their business is not a “specified service trade or business”
The last criterion is only applicable if the income exceeds the limits set by the first criterion, so a person who owns a specified service trade or business with an income lower than those limits can still qualify for the Section 199a deduction.
The deduction is very important to understand since it represents a 20% deduction on taxes. Though this article gives the basics, it is best to connect with an experienced PEO from NetPEO’s nationwide network in order to ensure that you know exactly where your business stands.
Defining a “Specified Service Trade or Business”
If a business owner’s income exceeds the stated limits ($157,500 for a single filer or $315,000 for a married couple filing jointly), they may only be eligible for this tax cut if their business is not a specified service trade or business. At its most basic level, a specified service trade or business exists when the owner’s or employees’ abilities or skills act as the main asset. Examples can include the following:
- A professional athlete
- Financial management services
- Investment services
- Any business in the performing arts
- Health services
- Law
Again, this distinction only comes into play if the taxpayer (in this case, the owner) reports more than the stated income limits. Otherwise, the business is still eligible for the deduction even if it is one of these trades or businesses.
Types of Eligible Businesses
The kinds of businesses that are eligible for the Section 199a tax break are called “pass-through businesses,” and they can include a range of different business types. If you find your business structure on this list, it is probably eligible for the deduction.
- S corporation (C corporations are not eligible)
- Sole proprietorship
- Trust
- Estate
- Some Co-ops
- Single-member LLC
- Partnerships
Additionally, the income that is considered for the deduction includes all of the gains, losses, and deductions from the business as long as it qualifies under the guidelines.
Related: Do the Business Owners Lose Control of Their Businesses When They Work With a PEO?
PEOs Have Expertise in Tax Matters
One of the many benefits of working with a PEO like the ones in NetPEO’s nationwide network is the depth of expertise in HR and accounting matters. Our PEOs are perfectly poised to help with the Section 199a deduction because they serve small and new businesses. In addition to tax issues, PEOs can help client businesses with all of their HR needs.
Recruitment and New Hire Services
Recruiting is crucial for bringing the best employees into a business. Not only do PEOs assist with the recruiting service through updated interview strategies and extensive background checks, but they can help build a successful new hire process to orient employees for smooth operations. These services can include the development of employee handbooks and anti-harassment policies.
Regulation Compliance
Dealing with taxes involves jumping through the many hurdles set up by the IRS. Operating a successful business also relies on adhering to the regulations and labor laws at the state level as well as federally. With over 200 years of combined experience, our PEOs are skilled at ensuring compliance and preventing costly errors.
Payroll and Benefits
By engaging with a PEO through the co-employment relationship, companies can receive crucial help with their payroll services and employee benefits packages. Not only can this save employers time handling extensive paperwork, but PEOs often have many more employees under their co-employment umbrella and therefore can provide better benefits at a lower individual cost.
Related: How Can A Small Business Benefit From Using A PEO?
A PEO Brokerage You Can Trust
NetPEO operates as a PEO brokerage service, pairing your company with a PEO from our vast network that can meet your specific HR and accounting needs. Founded by industry veterans, we have industry-leading customer satisfaction rates of 100% and a client retention rate of 95%.
We can use our experience in the HR outsourcing world to prevent friction between you and your PEO and solve problems if they arise. Even after your company has been paired with a PEO, we stay with you throughout the duration of your co-employment agreement to ensure that you are satisfied with the services you receive.
Related: What Are the Pros of PEOs for Small Business Health Insurance?
Get a FREE Quote Today
If you would like to hear more about NetPEO’s nationwide network, schedule your FREE quote today. Fill out the form on our contact page, or call us at (678) 376-1212 to speak with a representative. We look forward to working with you!
