The Law of the Market: Talking About Qualified Business Income Tax


Whether we like it or not, we are now immersed in the heart of tax time. As you may know, Section 199A of the Internal Revenue Code provides most New Hampshire business owners with an annual federal income tax deduction of 20% on their share of their business. If you are the sole owner or co-owner of a private New Hampshire business, your main 2022 federal tax issue will most likely be an IRC Section 199A issue. Here’s what you need to know about Section 199A:

If the taxable income you report on your 2022 federal income tax return is less than the Section 199A “threshold amount” (explained below), your Section 199A deduction will be 20% of your share of the income. corporate net of your business. If you file your federal tax return separately, your 2022 threshold will be $170,050. If you file it jointly with your spouse, it will be double that amount, or $340,100.

So, if your federal taxable income is below the Section 199A threshold amount, your primary goal should be to maximize your net business income and therefore maximize your 20% deduction under Section 199A.

For many New Hampshire business owners whose businesses are sole proprietorships, single-member LLCs, or multi-member LLCs taxable as partnerships and whose taxable income is below the Section 199A, the best way to achieve the above maximization is, for federal tax purposes, to compensate you for your services to your business in the form of distributions from income allocations your business has allocated to you. You should not be paid for these services in the form of a salary. (However, for New Hampshire business income tax purposes, you will be able to pay yourself a salary.)

In the case of sole proprietors and members of single member LLCs, these LLC distributions generally mean distributions of all of their income. For members of multi-member LLCs, this will mean distributions of income allocated to them under their operating agreements or, if they do not have an operating agreement, distributions of income of LLCs that must be allocated to them by their LLCs under the New Hampshire LLC Act. (Allocations by multi-member LLCs to their members are essentially simple accounting entries of the LLC’s income due to members, as required by their operating agreement or limited liability company law. New Hampshire Limited Distributions are actual transfers of cash by these LLCs to their members (often by check).

However, if your taxable income exceeds your threshold, the rules determining your deduction under Section 199A will be completely different from those described above; they will be much more complex; and the tax filing software may very well apply them by mistake.

For one thing, the rules in Section 199A will apply to you very differently depending on whether your business is a “specified trade or service business” (a “SSTB”) or a “qualifying trade or business” ( a “QTOB”). People whose businesses are SSTBs include accountants, actuaries, lawyers, consultants, and healthcare providers. QTOBs refer to all other types of businesses, trades and professions. For example, if you are an architect, engineer, or sales professional, your business for purposes of Section 199A is a QTOB.

I happen to believe there is a way to explain in plain language even the most complex rules in Section 199A that apply to people whose taxable income exceeds their thresholds. In the next two columns, I will do my best to achieve this goal.

John Cunningham is an attorney licensed to practice law in New Hampshire and Massachusetts. He is legal counsel for the law firm McLane Middleton, PA. Contact him at 856-7172 or [email protected] His website is To access all of his Law in the Marketplace columns, visit


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