Published Sun, 27 Jan 2019 23:42:52 -0500 on Seeking Alpha
Introduction The Tax Cuts and Jobs Act (TCJA) of 2017 allows many tax payers to exclude 20% of their Qualified Business Income (QBI) from their taxable income. This results in a lower effective tax rate on QBI. Since QBI includes several types of pass-through income (e.g. sole proprietorship, partnership, S-Corporations, REIT, and MLP), many investors and business owners are going to get a decent additional tax break for 2018 and beyond. My last article, published on Seeking Alpha, covered the QBI deduction in more detail. This article takes a more detailed look at the effective tax rates provided by the 20% QBI deduction, including a comparison with tax rates on qualified dividends.
Effective Tax Rates For QBI The TCJA (section 199A) allows taxpayers with qualifying pass-through business income (i.e., QBI) to deduct 20% of their QBI from their taxable income before the calculation of federal taxes owed. This effectively lowers the tax rate on QBI. The calculation below provides a conceptual summary.
For this example, let us assume the taxpayer's 2019 taxable income before QBI deduction is $120,000 and $10,000 of that is QBI.
- QBI deduction = 20% of $10,000 = $2000
- Final Taxable Income = $120,000 - $2000 = $118,000
- Tax calculation
10% of $9700 = $970
+ 12% of ($39,475 - $9,700) = $3,573
+ 22% of ($84,200 - $39,475) = $9,839.50
+ 24% of ($118,000 - $84,200) = $8,112
Total = $22,494.50
- Tax on $120,000 (without QBI deduction) =... Read more
|Stock name||Last trade||P/E||Earnings/Share||Dividend/Share||Dividend yield|
|KNOT OFFSHORE PARTNERS LP||20.10||8.0||2.51||2.08||10.40|
|SABRA HEALTHCARE REIT||19.34||12.8||1.51||1.80||9.56|
|STARWOOD PROPERTY TRUST||22.75||16.0||1.42||1.92||8.51|
|OMEGA HEALTHCARE INVESTORS||35.90||25.6||1.40||2.64||7.39|
|WESTERN GAS PARTNERS||33.57||19.9||1.69||2.44||7.22|
|PHYSICIANS REALTY TRUST||18.17||60.6||0.30||0.92||5.21|
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