New tax deduction for small businesses detailed

Small business owners have gotten more information about a new tax break many will get, with the IRS issuing proposed regulations that explain the deduction for qualified business income and which company owners can claim it.

Some of the new details include how to handle a spouse’s income, whether side businesses qualify, and the rules for losses in one or more businesses.

Under the new tax law, many owners can deduct 20 percent of their qualified business income, up to a ceiling that’s equal to 20 percent of their taxable income minus capital gains. Qualified business income is earned from a company operated as a sole proprietorship, partnership or S corporation. These businesses are known as pass-throughs because the company income “passes through” to owners’ 1040 forms, where it is reported to the IRS.

Business owners of any kind can get the full 20 percent deduction as long as their taxable income — which includes earnings outside their companies — is no more than $157,500 for an individual and $315,000 for a married couple filing jointly. Even if the owner’s spouse has income from outside the business — for example, being employed in a different field or industry — that income is part of the calculations to determine whether an owner can take a qualified business income deduction.

If owners’ taxable income is above the $157,500 or $315,000 threshold, they may get a partial deduction. The computations needed to determine a partial deduction are complex and affected by how much the business pays its employees and the value of some of its property.

However, owners whose companies are what’s called a specified service trade or business — for example, health providers,