The 20% Sec. 199A qualified business income (QBI) deduction is designed to provide some tax relief to owners of pass-through entities. There are several limitations, most notably on high-income owners. These owners may be subject to a limitation on the QBI deduction based on the entity’s Form W-2 wages paid to employees and its unadjusted basis immediately after acquisition (UBIA) of qualified property. The QBI deduction may also be subject to limitation if the taxpayer’s trade or business is a specified service trade or business (SSTB).
Guaranteed payments are treated similarly to wages. Therefore, partnerships and limited liability companies should review their operating agreements to ensure that the owners are maximizing the QBI.