§199A Qualified Business Income Deduction: A Quick Primer

By Fred Sroka, Dean of the GGU School of Accounting & Bruce F. Braden School of Taxation

The Tax Cuts and Jobs Act (TCJA) was signed into law on December 22, 2017. It dramatically reduced corporate tax rates, from 35% to 21%. The small business lobby fought this change because it shifted the competitive balance from local businesses (that tend to be sole proprietorships, partnerships or limited liability companies) to big corporations.

To address this, new §199A reduces the tax rate for individuals or trusts on “qualified business income” (QBI). The law was drafted hastily without the usual public hearings. As a result, we all need guidance from IRS or technical corrections from Congress before we can be confident in how this new law will be applied.

  1. §199A Tax Benefit: The new law is designed to reduce tax rates on business income. Rather than create a different tax rate chart, Congress instead created a 20% “QBI deduction.” This approach gives a very favorable result, since it reduces tax at the highest tax bracket. For individuals in the top tax bracket of 37%, a full QBI deduction will reduce tax on business income to 37% * 80% = 29.6%!


As pointed out in the above slide, tax deductions generally impact many tax attributes other than tax calculations. To avoid this, the law specifies that the QBI deduction does NOT affect other tax attributes like the net operating loss (NOL), tax basis or Adjusted Gross Income (AGI). The law also specifies that the QBI deduction can be claimed regardless of whether the taxpayer itemizes deductions, claims the standard deduction, or is subject to the Alternative Minimum Tax (AMT). In short, the deduction just lowers your tax!

  1. How does the QBI deduction work? Calculating the QBI deduction is complex. Let’s begin with a “road map” of the calculation.


  • Business Activity: The first step is to determine whether income comes from a business activity, as opposed to an investment activity. The law also excludes foreign business income from the calculation.
  • Compensation for Services: The second step is to determine whether the income represents compensation for the taxpayer’s services.
  • Taxable Income Test: If your taxable income (before any QBI deduction) is under $315,000 (for a joint tax return) or $157,500 (for an individual tax return), you’re done! Simply deduct 20% of the QBI that isn’t treated as compensation. If your taxable income is above these amounts, you must pass through two more hurdles.
  • Specified Service Business Income: The new law denies some or all of the QBI deduction for doctors, lawyers, accountants, and many other professional service providers if their income is above the taxable income test.
  • Wage Limit: The new law limits the QBI deduction for all businesses if the business doesn’t employ enough people (or, as we’ll see, buy enough depreciable property). Again, this limit only applies if you exceed the taxable income test.
  • QBI Deduction: If you make it through the above tests and limits, you are entitled to deduct 20% of your QBI in computing your federal tax!
  1. Business Income: Let’s begin with an exploration of the business income test. Happily, QBI can come from a sole proprietorship, a partnership, LLC or even S corporation. The only business entity which prevents this flow-through is a corporation which pays its own tax under Subchapter C (fittingly called a C corporation).

QBI has some immediate limits on the types of income that qualify. First, the income must come from a domestic business. If a business has operations in a foreign country, the income attributable to foreign operations must be separated and disallowed. Second, the income must be ordinary business income. This means that capital gain, dividend income, interest income (except for business interest paid by customers), and a few other exotic types of income (net of related expense) are disallowed.


Perhaps the greatest challenge in defining QBI is determining whether income constitutes a business. For many years, taxpayers have been afraid of calling an activity a business. Business income is subject to self-employment tax and it generally exposes us to tax in other states or even other countries. TCJA has shifted this balance dramatically. First, investment expenses incurred by individuals (previously deductible under §212) will no longer be deductible starting in 2018. Second, only business income qualifies for the 20% QBI deduction.

What does it take to be a business? In general, the amount of income isn’t important. Instead, the Courts tend to focus on the level of involvement of the owner. If the activity is substantial, systematic and continuous, Courts have considered the activity to be a business. Under this standard, merely renting your house to a relative, or renting a warehouse to an unrelated tenant under a triple-net lease do not rise to the level of a business.

Do we want all our activities to be treated as businesses? Maybe not. First, TCJA has also introduced very liberal cost recovery rules, allowing for immediate write-offs of many purchases of new and used property. If you expect your activity to run at a loss, you might prefer to limit your activities to prevent the loss from offsetting other business income in the computation of the QBI deduction.

  1. Compensation: Compensation for services is also ineligible for the QBI deduction. Thus, any wages that are reported to you on a form W-2 do not qualify. A number of blogs have suggested that employees should simply quit their jobs and ask their boss for a form 1099. Please beware of any advice that sounds too good to be true. To be in your own business, you must control the “manner and mode” in which you do your work. The IRS applies 20 common law factors to decide whether the taxpayer’s classification as an independent contractor makes sense.


Even if you are in your own business, a portion of your income may be treated as compensation for services. §199A(c)(4) excludes any W-2 wages paid to the owner by an S corporation. The statute also disallows QBI deductions for compensation paid by a partnership to a partner if the amount is determined without regard to partnership income. The law does NOT specify other types of income that will be treated as “reasonable compensation”, raising significant questions about the choice of entity in running our businesses.

  • Sole Proprietorships: Curiously, the statute does not explicitly include any portion of income from a sole proprietorship as compensation for services. This seems odd, particularly where the business is itself a service business. Absent future technical corrections or guidance from IRS, most sole proprietors will qualify for the QBI deduction.
  • Partnerships: Partnerships can pay partners a “guaranteed payment” under §707(c), or make very similar payments under §707(a). Both of these are ineligible for QBI. As a result, many partnerships may change their economic terms, reducing any partner’s right to fixed compensation, instead increasing the partners’ share of “bottom line” income. Like sole proprietorships, the statute does not state that these allocations of net profit will be treated as compensation, even if the partnership provides services.
  • S Corporations: Prior law has firmly established that S corporations must pay “reasonable compensation” to shareholders, or else any distributions to the shareholder will be recharacterized as salary. This salary is not eligible for the QBI deduction. As a result, many S corporations may feel that they are at a disadvantage compared to other forms of business entities. Before precipitously changing away from S corp status, taxpayers should consider other factors:
    • IRS only forces S corp shareholders to recognize compensation income if they actually take money out of the business. As a result, if the profits of an S corp are retained within the business for growth, the statute appears to allow for full QBI deduction.
    • Before changing from an S corporation to any non-corporate form of business entity, owners should be VERY concerned about the tax impact of liquidating the corporation. Liquidation of any corporation (C or S) triggers gain on the appreciation in all corporate assets. Even a small service business likely has substantial value in its trade name and goodwill. The tax cost of liquidating a small service S corporation can be devastating.
    • Finally, shareholders in an S corporation benefit from a glitch in the “Net Investment Income” (NII) rules of §1411. If the shareholder “materially participates” in the business (meaning works over 500 hours per year) and receives reasonable compensation for services, then any residual income allocated to the shareholder on the form K-1 likely escapes both the 3.8% SE tax and the 3.8% NII tax. TCJA failed to close this obvious gap between the SE and NII taxes. As a result, S corp shareholders may prefer to give up the 7% QBI benefit on their salary if the 3.8% benefit on distributions is substantially larger.
  1. Taxable Income Test: We now know what income meets the definition of QBI. The next step is to determine whether any limits apply to the QBI deduction. This is based on the taxable income (including income from all sources, not merely the one business) excluding only the QBI deduction itself.


If your taxable income (before the QBI deduction) does not exceed $157,500 on a single return, or $315,000 on a joint return, then you are not subject to any further limits. You simply multiply your QBI by 20%, and that’s your QBI deduction.

Conversely, if your taxable income is over $207,500 on a single return, or $415,000 on a joint return, you are fully subject to the “Specified Service” and “Wages” limitations. As explained below, this wipes out any QBI benefit for Specified Services, and limits the benefit if the business does not pay sufficient W-2 wages.

The taxable income limits phase in gradually between the above floor and ceiling. For a joint return, every $1,000 of taxable income over the $315,000 floor results in an additional 1% of the limits being applied, so that fully 100% of the limits apply once your income hits $415,000. Single taxpayers increasingly are limited by 1% for every $500 their income exceeds the $157,500 floor.

  1. Specified Service Business Test: If your taxable income is below the above limits, then it doesn’t matter what business or profession you are in. However, if you are over the limit, then a portion of your QBI from certain service businesses will be limited.


Which businesses are specified? To begin with, most licensed professionals (doctors, lawyers, accountants, etc.) are specified. Curiously engineers and architects were removed from the list of specified businesses shortly before enactment. In addition to licensed professionals, artists, consultants, and athletes are considered “specified.”

A separate category of specified business involves financial services. Bankers, stock brokers, investment advisers, and dealers are all treated as specified.

One final category of specified service is any business where “the principal asset of such trade or business is the reputation or skill of 1 or more of its employees.” This category comes from the “Qualified Small Business Stock” rules contained in §1202. Sadly, there is little case law to interpret how reputation or skill of an individual is measured as an asset of the business.

  1. Wages Test: If your taxable income is below the taxable income limits discussed above, then it doesn’t matter how much you pay in W-2 wages. However, if you are over the limit, then your QBI deduction may be limited. The purpose of the limit is to restrict the §199A benefit to those businesses who create jobs. However, pressure from the real estate industry created a secondary test, which measures a combination of wages paid and depreciable property used in the business.


  • Wages: The basic limit is 50% of the amount of wages paid and reported on form W-2 for the current tax year. The statute does not exclude wages paid to the owner, though as explained above these wages will not themselves be eligible for the QBI deduction.
  • Wages and Property: The alternate test includes 25% of wages, plus 2.5% of the “unadjusted basis” of tangible depreciable property used in the business. The property must be held in the business at the end of the year, must have been used in the business during the year, and cannot be fully depreciated AND more than 10 years old. The term “unadjusted basis” is unclear. IRS Pub 946 states that unadjusted basis of property is the purchase price reduced by any “bonus depreciation” under §168(k) or expensed under §179. §199A(b)(2)(B)(ii) uses the term “unadjusted basis immediately after the acquisition of all qualified property.” It is possible (but not certain) that the QBI deduction will face greater limits if §168(k) bonus depreciation or §179 expensing is elected.

The impact of the wages limit is complex. Let’s assume that Ann’s QBI is $100,000, but she only paid $10,000 in W-2 wages and doesn’t have depreciable property.  If her taxable income is under $315,000 (mfj), Ann escapes any limit and her QBI deduction is 20% * $100,000 = $20,000. If Ann’s taxable income is over $415,000, then her QBI deduction is limited to the LESSER of 20% of $100,000 QBI or the $10,000 wages. As a result, Ann’s QBI deduction is only $10,000. Finally, if Ann’s taxable income is $365,000, then she is subject to half the limit—so she gets $15,000 of QBI deduction.

Finally, it is worth noting that a specified business may be subject to a second limitation if taxable income falls between the floor and ceiling amounts. The calculation first disallows a percentage of the specified QBI, and then separately applies the wage limit to QBI and wages reduced by the same percentage.

  1. Special Rules for Losses: What if Ann makes money in one business but loses money in another business? The law requires that she reduce the income from the first business by the amount of loss in the second. If the result is an overall business loss, that loss carries forward to reduce Ann’s QBI deduction in the following year.

Two additional special rules regarding losses have been introduced. First, if a taxpayer has an overall business loss that exceeds $250,000 on a single return ($500,000 on a joint return), that loss is disallowed and carried forward to future years. This prevents large business losses from being offset by large investment income.  Finally, the passive loss limitations of §469 are applied before the computation of QBI, so any net passive losses do not offset income from active businesses.

CONCLUSION: §199A provides a substantial tax benefit for non-corporate businesses and businesses operating through S corporations. However, uncertainty remains on the definitions of business, compensation, and specified businesses. Along with this uncertainty, the new law imposes a complex series of limitations which may reduce the benefit. Finally, taxpayers will not know how to compute their benefit until their taxable income is finally determined, which may not occur until after the end of the tax year.

About Fred Sroka

Fred Sroka, JD is the Dean of the GGU School of Accounting & Bruce F. Braden School of Taxation. Fred Sroka received his JD from UCLA, practiced as a tax lawyer for 18 years, worked as a tax accountant for 18 years, and managed a couple of years as a management consultant! He has been a member of the GGU adjunct tax faculty since 1983, and a member of the tax advisory board. Fred retired from PricewaterhouseCoopers (PwC) in 2014 and has served as the Dean of the Bruce F. Braden School of Tax since October 2014.

He holds an active CPA license in California and Colorado and is an inactive member of the California State Bar. Fred and his wife Ronda have two kids (both off in grad school), who provide constant coaching on the world from a millennial student’s perspective. Fred loves to play tennis and golf and is constantly puttering around the house with his tools.

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Audio Meets Auditing: Careers for Music Majors in Tax & Accounting

What can you do with a liberal arts or fine arts degree? It is a question that many millennials (and their parents) are asking more and more since the crash of 2008. Recent statistics showing flat or declining humanities majors and rising STEM majors back this up. However, students that lead with their dreams may discover, to their delight, that their degrees lead them to good salaries and satisfying work. Psychology majors may not wind up seeing patients but love management, where empathy and encouraging employee growth are considered key skills. English majors become content marketers and painters can become web designers. Gender studies majors might find a mission in human resources. Musicians become … tax professionals or accountants? That’s right.

AJ Major, a partner in a California CPA firm, plays in a rock band and notes that he has run into a lot of accountant-musicians. In a blog post on music and accounting, he quotes a colleague who said: “I think there’s a connection between the left and right side of the brain. Accounting and music [are areas] where there can be that crossover.” It may be more than coincidence that audio and audit have the same Latin root that means “to listen.” Janet Jackson and Mick Jagger studied to be accountants, after all.

“You need some creativity and individual thought in both.
–Linda Weng, Assistant Tax Manager, The Clorox Company
and GGU student

From Symphonies to Schedules

Linda Weng was a top-notch violinist in the Shanghai Wanfang Symphony Orchestra, traveling to several cities in China to give performances. Playing Mozart’s music filled her with a sense of well-being and is her favorite composer to this day.  She calls herself part of the “professional audience” now, “because I know what I like. But music is a better hobby than a career path.” Does Weng draw a connection between her music background and journey toward a CPA designation? She says yes:

“You need some creativity and individual thought in both. The law is interpretive, like looking at a music score. You can listen to other symphonies, but each has its own way to understand a piece. We use software in tax and accounting, but there are different ways to solve problems. You don’t have to do like you did it last year. So it is each employee’s responsibility to solve a problem. My company encourages finding a way of your own.

Learning to adapt is important because in the symphony we are always learning new pieces. This kind of change keeps things interesting in both the symphony and my current field. You must learn quickly, or you get behind—especially with the recent state and federal tax reforms.

In a symphony, you must work together. You must be seamless in the business world too, as we always rely on another department’s calculations.

Weng is currently working as an Assistant Tax Manager at The Clorox Company’s world headquarters in Oakland, with a number of Golden Gate University Graduates who are in the senior manager and director-level roles.She has two classes left in GGU’s MS in Taxation program.

Music Majors in Tax & Accounting Schools

Weng is not alone in experiencing the “audio-audit” connection while getting a master’s degree in taxation at Golden Gate University’s Bruce F. Braden School of Taxation. The school’s Dean, Fred Sroka, says:

“Many of our successful accounting alumni have a background in liberal arts. In Taxation, laws are always changing and are subject to interpretation. Our graduates describe how they enjoy collaborating with executives to analyze situations and decide what moves to make. We have many music majors that have thrived in the GGU Master of Accountancy program, because musical literacy rests on an understanding of patterns and structures, along with a strong creative streak!”

In addition to musicians, The Braden School is populated by a good number of former history, psychology & sociology, and criminal justice majors. Accountants are not, as Sroka says, simply “math people.”

“One of the music majors in Deloitte’s education program wrote tick marks on working papers that were musical notes…This experience led Hurd to make non-traditional hires when he became Assistant Controller at a private company.”

Music Majors on the Job

When Rod Hurd first joined Deloitte in San Francisco in the 1980s, about a quarter of Deloitte’s new hires were liberal arts or music majors. Deloitte’s recruiter sought out graduates with these non-accounting degrees based on the firm’s experience with similar hires in the past. Deloitte sought graduates who exhibited strong critical thinking and communication skills with the expectation of drawing on these skills for auditing field work. “One of the music majors in Deloitte’s education program wrote tick marks on working papers that were musical notes,” Hurd says.  “He was one of the standout performers of our class.”

This experience led Hurd to make non-traditional hires when he became Assistant Controller at a private company.  Again, musicians proved to be top performers. Hurd has also been involved with a trade group, principally as the Chair of its Financial Accounting Committee, in the development of tax laws & accounting standards.  “Several of the top performers on that committee are non-accountants who bring unique insights and perspectives to the issues facing the industry,” Hurd says.

Rich Carson, a partner at PricewaterhouseCoopers, was a professional jazz drum and trombone player who toured the US and Europe with his band as a young adult.  PwC, he says, has periodically refocused recruiting to seek candidates from liberal arts undergraduate programs. “In a way, varying tempos, meters, key signatures, chord orientations and progressions, pitch and volume discipline, and teamwork are critical and are transferable skills to the profession,” he says. People with other fine arts degrees also do well in the profession. A dance major who Carson mentored worked her way up to Assurance Partner: “I saw her grow quite nicely in the firm.  She was a very thoughtful and productive Partner and there are many more like her.”

Carson offers that computer gamers may be another non-traditional incarnation of the successful accounting candidate.  A student of Carson’s at GGU (and new Deloitte associate) reached the highest competitive rank League of Legends, Overwatch, and Counter-Strike and played with or against professionals. “This type of student,” Carson says, “might be more adept at the analytics and communication needed…even though he is not a ‘liberal arts type.’  He had a great capacity to recall, orient, and analyze data. I am very curious how his Deloitte internship will turn out.”

If you are surprised that musicians find a home in tax and accounting fields, you might want to look at the rest of Fred Sroka’s blog post that debunks accountant stereotypes or learn more about GGU’s tax and accounting degrees.


GGU Professor Joins Editorial Advisory Board of Prestigious Taxation Journal


Kathleen Wright, CPA, JD has been named to the editorial team of the prestigious Tax Notes publication, which has provided commentary and analysis on the latest changes in tax law and policy for over 45 years. Professor Wright, Director of the State and Local Tax Program at GGU’s Bruce F. Braden School of Taxation, has also written a column on numerous state and local topics for State Tax Notes.  She has also published articles in The Tax Adviser, The Tax Lawyer, The Journal of State Taxation, and The Journal of Legal Tax Research.

Professor Wright brings her GGU students the analytical ability evident in her writing and real-world experience from a private tax practice that focuses on client representation and small-business tax consulting. She says that it is no longer sufficient to prepare for a career in State and Local Tax by simply understanding the law in your home state:

Now it is necessary to understand the different rules that apply in all of the states where your client does business–and to be able to put together the different results and provide a roadmap for your client that achieves the objectives of administrative simplicity and tax savings. 

Professor Wright’s multistate tax classes take GGU students through multiple case studies where a taxpayer does business in multiple states. The job of the practitioner is to determine the best entity structure (or transaction structure) to maximize tax savings and eliminate the risk of double-tax. The class presents a challenging experience and opportunity for students to develop analytical skills in the state and local area – frequently referred as the “Wild West” of the tax law (because its diverse rules vary significantly from federal law).

In addition to an LLM from Golden Gate University School of Law, Wright also holds a BS (Accounting) from Florida State University, a JD from Fordham Law School (New York City), an MBA (Taxation) from New York University.  A licensed CPA in California and New York, she has been admitted to practice law in New York.  She speaks frequently on multistate topics and continues to present seminars for the California CPA Education Foundation and other professional groups on a wide variety of topics. Governor Brown appointed her to the California Board of Accountancy in 2015.

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Taxation Graduate Spotlight: How Their Education Helps Them on the Job

Golden Gate University is 100% focused on giving students the skills and opportunities they need to advance their careers. This short video (4:53) features alumni who are working in IT consulting, forensic accounting, and auditing. All graduates of the Master’s of Science in Taxation program, they are asked how their education helps them on the job. Learning how to interview, conduct deep research, and communicate effectively are the key themes of the video. The advanced degree also provided them access to high levels of their organizations and provide services for local companies with a worldwide impact.

We invite you to build your career by requesting information about taxation degrees and courses.

GGU Students and Alumni Provide Free Tax Prep to the Local Community


GGU is now a registered Volunteer Income Tax Assistance (VITA) program site, and will participate in the Earn it! Keep it! $ave it! program. Operating under the umbrella of the United Way and sponsored by the IRS, this nationwide program helps limited-income families with free tax preparation. For the 2018 tax season, students and alumni of the Bruce F. Braden School of Taxation will help taxpayers take advantage of special tax credits for which they may qualify such as the Earned Income Tax Credit (EITC), California EITC, or Child Tax Credit.

The effort to get GGU involved with VITA for the first time was led by Nooshan Famili, who is currently pursuing a master’s degree in taxation (’18) and works as a tax intern in Deloitte. As a UCLA student, she was a volunteer at an Earn it! Keep it! $ave it! location in Los Angeles and won a Super Hero award for her performance. Coordinating volunteers and promoting the event are part of her responsibilities for the 2018 program.

Nooshan Famili (’18)

As an immigrant from Iran, Famili appreciates the help VITA provides to help others like her understand their special tax requirements. “People who qualify for VITA generally get a refund,” she says. “VITA activities are also an opportunity for students to build new skills, interact with their peers, and network with GGU alumni and the taxation community.”

Famili also notes the enthusiastic support of Fred Sroka, Dean of the GGU School of Accounting & Bruce F. Braden School of Taxation, in bringing the VITA Program to GGU.

If you are interested in volunteering or taking advantage of free tax preparation, please see GGU’s VITA web page.

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“What do the new corporate tax rates mean to my business?” Or “To C or not to C . . . that is the question!”

By Fred Sroka, Dean of the GGU School of Accounting & Bruce F. Braden School of Taxation

The tax rates for corporations have dramatically changed in 2018. The Tax Cuts and Jobs Act (TCJA) has reduced federal corporate tax rates from 35% to 21%. With this reduction, many flow-through businesses are asking whether they should convert to C corporations. Let’s explore the opportunity, and factors that may influence your decision.

The vast majority of U.S. businesses are organized as partnerships, limited liability companies (LLCs), or S corporations. These entities pay a single layer of tax on their income, while traditional corporations (called “C corporations”) pay two layers of tax, first at the corporate level (up to 35% federal) and second when the profits are distributed to the corporate owners (at up to 20% federal).

Choice of Entity in 2018: Three Key Questions

1. Can we convert to a C corporation for tax purposes?

Let’s begin with the simplest step, electing corporate status. Happily, the IRS has made this incredibly easy. Any LLC or partnership can convert to corporate status by filing form 8832. If the form is filed with IRS by March 15, the election can be effective retroactive to January 1, 2018! If your company is currently taxed as an S corporation, then you need to file a statement with IRS under Regs. §1.1362-6(a)(3) to terminate the S status and become a C corporation.

2. Will our taxes be lower as a C corporation?

It certainly sounds better to pay tax at the new 21% corporate tax rate than the 37% individual tax rate, even if your shareholders need to pay a second tax on any distributed profits. However, the decision is not that simple:

Cost Recovery: Incorporating will only save taxes if the business generates profits. TCJA allows very liberal deductions for purchases of business property. You may be able to reduce or eliminate your company’s 2018 income by simply buying new business assets.

Character: While many kinds of ordinary income is taxed to individuals at 37%, TCJA has dropped the tax rate on most business income to roughly 30% under new §199A. More importantly, capital gains are taxed to individuals at a 20% rate. If your business has substantial value in its trade name, goodwill and other capital assets, the decision to be taxed as a C corporation can lock current and future appreciation into double tax.

State Tax: The double tax on corporations also applies to state taxes. If the owners plan on distributing profits from the business, they should be sure to consider the state taxes imposed on both the corporation and the shareholders.

Basis: Tax basis is used to make sure that, at the end of the day, your cumulative taxable income or loss equals your cumulative economic gain or loss. If your tax basis in the business is less than total debt, the decision to incorporate can trigger immediate tax under §357(c). More importantly, corporations don’t allow owners to get basis in the entity’s debt. This prevents most businesses with substantial real estate (and related mortgages) from using corporate structures. Corporations also prevent the changes in basis due to transfers by owners from increasing the basis of company assets. In short, worry about incorporating any business that has a lot of debt or expects a lot of owner transfers.

3. Making the Decision to Incorporate

If your flow-through business is profitable, doesn’t have a lot of debt, doesn’t face a lot of state tax, and doesn’t expect many transfers, you may save substantial taxes by electing to be taxed as a C corporation. The benefits of incorporating are much higher if you plan to leave the profits in the business, since dividends from C corporations cause a second layer of federal and state tax. However, once you incorporate all current and future appreciation is locked into double tax, debt and transfers may cause increased tax burdens, and you can expect your state taxes to increase.

The vast majority of LLCs and S corporations will likely decide to retain their entity choice, benefiting from the newly reduced tax rates on flow-through business income. However, every business should consult with their tax adviser to see whether their tax structure fits the new environment of TCJA.

How to Learn More

The new tax law creates both challenges and opportunities for our alumni. If you advise clients, expect that planning for 2018 will add to the long hours already committed to the coming compliance busy season. If you’d like more resources, please feel free to email me. To build your skills, please also consider coming back for another course or two at GGU. We offer substantial tuition discounts to our alumni!

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Tax Reform Update: Slides and Videos to Help Tax Professionals Advise Clients

By Fred Sroka, Dean of the GGU School of Accounting & Bruce F. Braden School of Taxation

On November 16, the House of Representatives and Senate Finance Committee passed different versions of the Tax Cuts and Jobs Act. The proposals are sweeping in scope. Sadly, we won’t know which proposals (if any) become law until very late this year, or even early 2018. We have provided summary slides and videos to help tax professionals advise clients in this uncertain time. Our experts have tried to keep things short, high level, and focused on reasonable actions you might consider before December 31, 2017.


Individual taxpayers may benefit from the proposed reduced tax on flow-through business income. Small businesses may want to defer income and accelerate deductions in anticipation of potential 25% tax rates on 2018 business income. The Bills also encourage purchases of business property through expanded write-offs. Small businesses may choose to defer any major purchases that would be capitalized under current rules, in hopes of getting an immediate write-off in 2018.

The tax benefits of home ownership may be reduced dramatically. Homeowners may want to prepay property taxes, and perhaps prepay the January mortgage installment to assure deduction of the interest expense. Proposed limitations on property taxes and mortgage interest may adversely impact residential prices, particularly in high real estate markets such as Northern California.

Individual taxpayers may also want to prepay itemized deductions that will be repealed under the Bills. State income tax and many other itemized deductions are scheduled for limitation or repeal. Curiously, the proposed elimination of the alternative minimum tax might encourage taxpayers to defer charitable giving, in hopes to getting a higher 2018 tax benefit.



The House Bill drops 2018 corporate tax rates from 35% to 20%. The Senate delays this reduction to 2019. Dramatic changes are also proposed to encourage investment in depreciable property, to discourage excessive debt, and to eliminate a variety of deductions, fringe benefits, and credits. Businesses should consider deferring income, accelerating deductions, and deferring purchases of depreciable property if current rules would require capitalization.

Domestic flow-through businesses (partnerships, LLCs, and S corporations) may want to consider converting to C corporation status to take advantage of the dramatic reduction in tax rates. These entities will have until March 15, 2018 to make a retroactive “check the box” election or revocation of an S election.

For financial accounting, ASC 740 requires the tax provision to reflect all changes in laws enacted by December 31. The potential impact on deferred tax assets and liabilities (and in particular on international operations) may have a dramatic impact on 2017 financials.



Partnerships and S corporations must address the potential 25% tax rate on business income. This may impact compensation structures and future activities of owner-employees. S corporations need to consider a number of other special rules at year end, and partnerships should address the impending change to IRS audits under the Bipartisan Budget Act. Starting with 2018 tax returns, IRS can audit a partnership much like a corporation, and can simply collect any deficiency from the partnership itself unless substantial planning is undertaken.



The tax proposals will have their greatest impact on international tax. The reduction of U.S. corporate rates to 20% will be accompanied by a territorial tax system, under which the earnings of foreign subsidiaries can be distributed to the U.S. parent without any incremental U.S. tax. Other provisions seek to punish offshore income and encourage the repatriation of intellectual property.
Multinationals may decide to convert foreign branches into subsidiaries. If this election is made by March 15, 2018, it can be retroactive to January 1. Foreign subsidiaries may wish to engage in substantive tax planning to defer net income. U.S. parents may need to report the dramatic impact of the changes in the tax provision of their 2017 financial statements. Ultimately, the proposed changes may cause a profound change in how multinational corporations are structured, financed and operated.



What Does A Tax Accountant Really Do? Alumni Debunk Stereotypes

In this short video, alumni of GGUs Master’s Degree in Taxation program go beyond the “number crunching” stereotype to discuss what a tax accounting career is really like. The interviewees are now working at Apercen Partners, Cisco Systems, and two “Big Four” Firms: PricewaterhouseCoopers (now PwC) and Ernst & Young (now EY).

Most mention communication with clients and coworkers as rewarding and essential to the job. As Wylan Lau, Tax Senior at EY, says: “[Job interview skills] such as how to present yourself, how to do public speaking, and how to talk to people..are relevant now in talking to clients [and] colleagues…Those are things I learned when I was at GGU.”

Request information about the Master of Science in Taxation program >>


Videoconference: Join the Discussion on the New U.S. Tax Proposals

By Fred Sroka, Dean of the GGU School of Accounting & Bruce F. Braden School of Taxation

The proposed Tax Cuts and Jobs Act of 2017 has grabbed national attention.  We’ve prepared three PowerPoint slide decks to help you discuss the major proposals with your clients.

Download PowerPoint Presentations

Free Videoconferences for Tax Professionals

Next Tuesday, we are hosting one-hour videoconferences to share perspectives on the impact of the proposed changes. If you would like to join any of the discussions, please register using the links below:

Individual Taxpayer
November 14, 2017
11:00am – 12:00pm
Register now >>

Business Taxpayer
November 14, 2017
12:00pm – 1:00pm
Register now >>

International Taxpayer   
November 14, 2017
1:00pm – 2:00pm
Register now >>

If you can’t join but have suggestions or concerns, please let me know.


Golden Gate University Ranked #1 in US for Adult Learners for Second Consecutive Year

For the second consecutive year, Washington Monthly ranks Golden Gate University America’s #1 School for Adult Learners in its annual College Guide and Rankings.

How GGU Was Chosen

To compile the rankings, Washington Monthly reviewed data from the Department of Education’s Integrated Postsecondary Education Data System (IPEDS) survey, the department’s new College Scorecard database and the College Board’s Annual Survey of Colleges.

The metrics that determined GGU’s rating include:

  • ease of transfer/enrollment
  • flexibility of programs
  • services available for adult learners
  • percent of adult students (age 25+)
  • mean earnings of adult students ten years after entering college
  • loan repayment of adult students five years after entering repayment
  • tuition and fees for in-district students

Read the article in Washington Monthly >>