4 ms·
This was a handy guide. I learned something. I was under the assumption the 20% deduction was only on the income you took as a distribution, NOT all of the inco
by jermaustin1 9y ago
This was a handy guide. I learned something. I was under the assumption the 20% deduction was only on the income you took as a distribution, NOT all of the income.
I literally jumped for joy... then I read #5, and had a sad. I still come out better than I originally thought, but not as good as #4 led me to believe.
- jacob019 9y agoAs I understand it, your original assumption was correct. The 20% only applies to distribution income, not to W-2 income. But the 20% deduction is limited to 50% of the W-2 income. So to maximize the deduction and minimize payroll taxes, the business owner will try to set his W-2 wages at 40% of the pass-through income, or two sevenths (~28.57%) of the business income before owner wages.