Jenifer S. Schembri, Estate Planning, Board Certified in Tax Law, The Florida Bar

While partners, members and shareholders of pass-through entities were provided a potential tax reduction in the 2017 Tax Reform Act in the form of a 20 percent Qualified Business Income Deduction of their pass-through earnings, determining an owner’s eligibility for and the calculation of the deduction is not so simple.

Here are some of the basic concepts of the deduction and its calculation. Generally speaking:

  • All taxpayers other than C-Corporations are eligible for the 20 percent deduction.
  • Partnerships and S-Corporations which are “tiered” will need to calculate this deduction at each entity level.
  • Trusts and Estates that own pass-through entities are also eligible for the deduction.
  • The deduction is not limited to taxpayers who itemize and is available to all taxpayers, similar to the standard deduction.
  • The deduction will sunset on December 31, 2025.


Taxpayers with taxable income of less than $157,500 (for individuals) or $315,000 (if married filing jointly), will qualify for the 20 percent deduction and will not be subject to any limitations, including the following:

  • Not subject to the service business limitation • Not subject to wage limitations

The deduction will be equal to 20 percent of the taxpayer’s qualified trade or business income, not including capital gains and salary or compensation to the taxpayer.

Once taxpayers exceed $157,500 (for individuals) or $315,000 (if married filing jointly), the amount of the 20 percent deduction is still allowed without considering the limitations, but the amount of the deduction is phased out until the taxpayer’s income reaches $207,500 (for individuals) or $415,000 (if married filing jointly). Once these income amounts are achieved, the limitations will fully apply (i.e. $207,500/$415,000) in determining the 20 percent deduction, including:

  • The service business limitation
  • The wage limitations


The 20 percent deduction (once the income thresholds are reached) do not apply to a “specified service trade or business.”

A “specified service trade or business” includes any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or a business which involves the performance of services that consist of investing and investment management, trading or dealing in securities (as defined in section 475(c)(2)), partnership interests, or commodities.

The businesses of engineering and architecture are specifically excluded from the definition of a specified service trade or business.


Step #1:  Determine the deductible amount for each Qualified Trade or Business (QTB) as follows:

The deductible amount for each QTB is the lesser of 20 percent of the income related to that QTB allocated to the taxpayer; or the greater of 50 percent of the W-2 wages with respect to the QTB allocated to the taxpayer; or the sum of 25 percent of the W-2 wages and 2.5 percent of the unadjusted basis, immediately after acquisition, of all “qualified property” allocated to the taxpayer.

For purposes of this calculation, “qualified property” is tangible property in service, which is accounted for at the fair value when placed in service and will be considered for the longer of 10 years or the applicable depreciation period.

Step #2:  The taxpayer’s deductible amount is equal to the lesser of the following amounts:

The taxpayer’s combined qualified income amount (CQBIA), or the sum of the following:

  • The deductible amounts for each qualified trade or business (QTB) determined in step #1 above, and
  • 20 percent of the taxpayer’s qualified real-estate investment trust (REIT) dividends.
  • 20 per cent of the taxpayer’s taxable income over any net capital gain.

This is a summary of the calculations for the qualified business interest deduction. If you have questions about your specific business and how to plan for your 2018 taxes, please contact our tax attorneys at 941.748.0100 or email tax attorney Jenifer Schembri directly at

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