The New 20% Deduction Continued- Anti Abuse Rules

The anti abuse rules of the new 20% deduction for pass through businesses don't kick in until your taxable income is over $157,500 single or $315,000 married. So if you have qualified business income and your taxable income is under these amounts, you can take the 20% deduction. One limiting factor is that the deduction is limited to the lesser of 20% of qualified business income or 20% of taxable income less net capital gains. If your taxable income is greater than $157,500 or $315,000 then the anti abuse rules come into play. Specified service businesses such as law, accounting, health, actuarial science, performing arts, consulting, athletics, financial services or any trade or business where the principal asset is the skill of one or more employees have the 20% deduction phased out over the next $100,000 over the $157,500 and $315,000. Note that architecture and engineering companies are not included in this limitation. The government is trying to encourage the building trades. If you are not a specified service business and have taxable income over the thresholds, then your deduction can be limited to the greater of 50% of W-2 wages or 25% of W-2 wages plus 2.5% of the unadjusted basis of tangible depreciable property.