You should know that the deduction:
The deduction is limited to 20% of the lesser of:
Not every business will get the full 20% deduction, there are some limits once you hit a certain income level where you get less of a deduction, those are called phase-outs.
The phase-out ranges for “specified” service business and other business are the same:
The impact of the phase out is different depending on whether you’re a “specified” service business or other business.
Here’s how it may impact your return:
Betty, Ian, Alice, and William all operate law practices as sole proprietors with different level of business income. They’re all single and none of them have any capital gains.
Betty Ian Alice William
(A) Net qualifying business income $100,000 $200,000 $100,000 $ 100,000
(B) Taxable income before new deduction $90,000 $220,000 $167,500 $120,000
Lesser of (A) or (B) $ 90,000 $200,000 $100,000 $100,000
New deduction before phase-out $18,000 $40,000 $20,000 $20,000
Phase-out $ 0 $40,000 $4,000 $0
New deduction allow $18,000 $0 $16,000 $20,000