Dear [CLIENT NAME]:

Business owners, landlords, and those who invest in real estate investment trusts (REITs) and publicly-traded partnerships (PTPs) may be eligible to claim the qualified business income (QBI) deduction (aka, the IRC §199A deduction). The QBI deduction provides taxpayers a deduction of up to 20% of their business or rental income, but only if certain requirements are met.

Your business entity is ineligible for the qualified business income deduction, but if your business operates in any of the following entity forms, the income you generate may qualify for this new 20% deduction for your owners and investors:

• S corporation;
• Partnership or limited liability company (LLC);
• Real estate investment trust (REIT);
• Publicly traded partnership (PTP);
• Tenancy-in-common rental properties; or
• Farm or fishing boat.

However, income you pay to employee-owners and report on form W-2 is not eligible, nor are guaranteed payments paid to partners. Additionally, an owner or investor’s distributive share of investment income, such as such as interest, dividends (other than REIT dividends), and capital gains, are ineligible for the deduction.

There are many other rules and limitations that accompany the qualified business income deduction, particularly for rental properties, but there are also many planning strategies we can employ to help you maximize this very valuable deduction.

For example, your total income may affect the amount you can deduct and there are things we can do to adjust your income up or down to be able to claim or increase your deduction.

The best tax planning is done as far in advance as possible. Please do not hesitate to contact us as soon as possible with any questions so we can get a jump start on maximizing your qualified business income deduction.

Sincerely,

Your tax professional