Multiple Trusts and the Section 199A 20% Deduction

Section 199A BackgroundThe Tax Cuts and Jobs Act of 2017 created a 20% deduction for noncorporate taxpayers against their qualified business income. For taxpayers in the highest bracket, this would reduce their tax on such income from 37% to 29.6%.There are limits on the use of the deduction for higher income taxpayers. One set of limits is the exclusion of service income (subject to some exceptions) from the deduction, and another requires significant wages or depreciable business property to benefit from the deduction. Therefore, higher income taxpayers are incentivized to reduce their taxable income to avoid these limitations.The deduction is available to trusts and estates and their beneficiaries.Using Trusts to Reduce IncomeSince trusts can take the deduction, it has been suggested that income from qualified businesses be split among numerous nongrantor trusts. By splitting the income among numerous trusts, the trust can stay below the limitation thresholds and take full…

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