rethink their operation. Here’s how it works: Let’s say Joe owns a tile installa- tion business, called Tile LLC, where the income is taxed as a sole propri- etor on Joe’s individual tax return. In 2018, Tile LLC has a profit of $250,000, which is reported on Joe’s Form 1040, Schedule C. Subject to certain income restrictions, Joe will receive a $50,000 deduction (20% of his Qualified Business Income) on his individual tax return! However, the restrictions on the QBI deduction add a great deal of complexity: First, there is an income threshold to consider. If Joe is married and files a joint tax return, he and his wife’s taxable income must be less than $315,000 to claim the full 20% QBI deduction (less than $157,500 for single taxpayers). For incomes over $315,000, a partial deduction is allowed for joint taxable incomes up to $415,000. If the entity is a personal services business (accounting, legal, consult- ing, and any other trade or busi- ness where the reputation or skill of one or more of its employees is the reason for the revenue, except for engineering or architectural ser- vices), no QBI deduction is allowed for pass-through income if the indi- vidual taxpayer’s taxable income is greater than $415,000 for joint filers. For entities that are NOT personal services corporations and the pass- through income exceeds the income threshold described above, a QBI deduction is available, but may be limited. In this circumstance, the QBI deduction is the lesser of 20% of QBI or 50% of the W-2 wages paid to all employees by the entity; or, alternatively, 25% of W-2 wages plus 2.5% of the original cost of tangible depreciable assets. For Subchapter S corporations, the rules requiring employee/own- BUSINESS TIP ––––––––––––––––––––––––––––––––––––––––––––––––––––––– 28 TileLetter | March 2018