All Forum Posts by: Michael Plaks

Lance, there is NO salary limitation under the threshold, that's the whole issue! S-corp could have $0 salary, and the entire $100k will qualify as QBI and allow a $20k deduction! So is Sch C. 

But S-corp has a statutory requirement to pay a reasonable salary - in other words, a statutory requirement to shoot itself in the foot. Sch C does NOT have a similar requirement, with the respect to QBI.

 No salary is required under the threshold. 

@Lance Lvovsky

But do you agree that, until further clarifications, reasonable salary for S-Corp becomes even trickier - i.e. much more incentive to lowball it, leading to more controversy and litigation?

 Yes, there will be penalty. You cannot avoid the penalty unless you qualify for one of the exceptions.

Guys, we know that 20% applies to the Qualified Business Income (QBI). Let's ignore service businesses, phaseouts and all other complications. Let's take a wholesaler netting $100k. So, he just gets a $20k below-the-line break, right? Not that fast!

The problem for me is this language: Reasonable compensation and guaranteed payments. 
Qualified business income does not include any amount paid by an S corporation that is treated as reasonable compensation of the taxpayer. Similarly, qualified business income does not include any guaranteed payment for services rendered with respect to the trade or business, and to the extent provided in regulations, does not include any amount paid or incurred by a partnership to a partner who is acting other than in his or her capacity as a partner for services.

The intention appears to be to count only K1 "dividend" income and exclude all income subject to SE tax - like reasonable salary under S-corp and guaranteed payments under PShip. Sorta kinda makes sense, even though opens a can of worms. If currently a reasonable salary only affects SE tax, under this concept it will also affect the 20% cut - raising the stakes tremendously.

Here comes my problem. Extending this concept, the entire Sch C should then be excluded from QBI, since it's an equivalent of reasonable compensation for services. In other words, ZERO QBI. No soup for you, Sch C?  That would negate the obvious Congressional intention to include sole proprietorships in this provision. So, that must NOT be the intended result, and nothing in the text indicates that it is.

But... If entire net Sch C is allowed for QBI, but an S-Corp has to establish and subtract a reasonable salary for QBI purposes - this suddenly puts S-Corp at a substantial DISadvantage against Sch C.  Which is also doubtful to be an intention.

Thoughts? @Brandon Hall  @Lance Lvovsky  @Ashish Acharya  @Brian Schmelzlen  @Paul Allen  @Vlad K.  @Basit Siddiqi

 Yes, but you will have to cancel escrow - or they will double-pay

@Tony Hightower

You're correct that higher income in the year of Roth conversion will likely push you over the $150k limit. Your understanding of the $150k limit is incorrect.

It is not about depreciation. It is about an overall loss after all deductions, including depreciation. Those losses are gradually phased out after $100k and disappear at $150k. However, they do not really disappear, but are pushed into the future.

@Jim T.

Your plan has my thumbs up. No need for a Roth conversion. Just in and out of the regular IRA.

I recommend you space the two transactions, to be on the safe side.

@Todd Willhoite

Good thinking, sir. You can do the contribution / rollover / conversion part - but not the withdrawal part. It will be subject to early withdrawal penalty, because your Roth is only 1 yr old. Needs to be 5 years.  @Mark S. linked a very good blog post, albeit very long and technical.

No, @Elisabeth Cooke.

Deductions for rental properties are not not part of SALT and not limited. It's generally recommended to pay property taxes on your rentals in December.