Article

Proposed computational framework for Internal Revenue Code §199A

Among the changes introduced by the Tax Cuts and Jobs Act (TCJA) is the addition of §199A, which is effective for taxable years beginning after 2017 and before 2026.1 Section 199A allows individuals and certain other noncorporate taxpayers a deduction of up to 20 percent of 'qualified business income' (QBI) from a partnership, sole proprietorship, or S corporation.2 Such taxpayers can also deduct under §199A up to 20 percent of their aggregate qualified REIT dividends, qualified publicly traded partnership income, and qualified cooperative dividends.3 This deduction is intended to reduce the tax burden on flow-through business income such that the tax burden is closer to that imposed on corporate income at the reduced federal corporate income tax rate of 21 percent enacted by the TCJA.4 Given the numerous definitions and phase-ins and phase-outs in §199A, however, the reduction of the tax burden comes at the cost of much complexity and uncertainty. This Article proposes a general framework, or step-by-step approach, for computation of the deduction under §199A.

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