Spousal Business and the 199A Deduction

I’d like to ask you a hypothetical question. (If you know the answer, great. If not, I’ll help you out.)

Here are the facts of the story you’ll need to know…

Fact #1: A doctor operates a medical practice as an S corporation and he’s the sole shareholder.

Fact #2: His wife owns an advertising firm that she also operates as an S corporation. She is the sole shareholder.

Fact #3: The doctor’s medical practice is one of his wife’s clients but his fees paid to his wife’s S corporation account for only 5-percent of her revenue.

Fact #4: Their combined taxable income is $450,000.

Now you’ve got the facts. Here’s the question.

Can the doctor and/or his wife
claim the big 199A deduction?

1. We’ll tell you why the good doctor is flat out of luck. The IRS has ruled that doctors are in an “out-of-favor specified service trade or business” (SSTB). Since the couple’s 2018 joint taxable income is over $415,000, none of the doctor’s qualified business income (QBI) is eligible for the deduction. We’ll give you the whole story when you read the full article.
2. You’ll learn why the doctor’s wife is much luckier. First, the IRS has ruled that advertising is not an SSTB. This means the doc’s wife’s income from her S corporation is eligible for the Section 199A deduction. You’ll get all the details when you read the full article.
3. We’ll tell you who the law applies to. It really is pretty straightforward. It’s all starts with what you earn. The SSTB issue affects you only if your taxable income is over certain dollar amounts. What are they? You’ll find out when you read the full article.