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Old 02-20-2018, 02:05 AM
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How's that 20% deduction on passthrough income going to work in practice?

Hello all! I am a longtime freelance sole proprietor who has a pretty good handle on how my taxes work, but I'm having a hard time getting my head around how the new 20% deduction for pass-through entities work? I'm trying to estimate my 2018 taxes as I go along and obviously this is going to have a huge impact. I've pretty much figured out that my income as a sole proprietor counts as "Qualified Business Income," so let's leave that question aside for the moment.

My understanding is that, in order to mirror the cut in the corporate tax rate, sole proprietors get to deduct 20% of their QBI. My question is, where exactly on our tax form will this deduction happen? I have an accountant friend who said it "doesn't lower your AGI, but rather it lowers the amount of taxable income you have" which is still a little obscure to me. Is the way to think of it as an additional deduction that I subtract from my AGI, after my standard/itemized deduction?

Thanks in advance for any guidance you can offer. It's crazy to me that we're halfway through Q1 and the IRS still hasn't released the 1040-ES for 2018!



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