Tax reform’s Section 199A deduction often confuses small-business owners and tax professionals alike. It’s quite possible you’ll get a Schedule K-1 from a business that omits the information you need to calculate your deduction.
What do you do?
You have a big problem. Without a properly completed Schedule K-1, your Section 199A deduction is a big fat $0.
Best option: fix the K-1. You should request a corrected Schedule K-1 from the entity giving you the Schedule K-1 so you have the information you need to calculate your Section 199A deduction.
Not-so-great options. If you can’t get a corrected Schedule K-1, you have two options:
- Take no Section 199A deduction.
- File Form 8082 with your tax return and claim the Section 199A deduction.
You file Form 8082 with your tax return when you take a position on your tax return that is inconsistent with the Schedule K-1 you received.
Since the final regulations presume the Section 199A amounts are $0 when omitted, it is possible Form 8082 can rebut that presumption. The truth is, we do not know for sure.
You can determine qualified business income, but not W-2 wages or unadjusted basis immediately after acquisition of qualified property, from the other information on the Schedule K-1. Therefore, the Form 8082 option is likely available only if you are under the Section 199A taxable income threshold ($315,000 on a joint return or $157,500 for all other filing statuses).
You also might use Form 8082 if your Schedule K-1 has wrong Section 199A information—for example, if the K-1 indicates the business is a specified service trade or business, but it is not.
Amended return. If you did not take a Section 199A deduction and you eventually get a corrected Schedule K-1, you can claim it on an amended return and claim a refund. If you need assistance with this, please do not hesitate to reach out to your team at Luster Tax Consulting to work through this with you. Please use the following link to book your complimentary strategy call with your team at Luster Tax Consulting.