The 199A allows 1099 physicians to deduct up to 20% of their 1099 revenue. There are limits on this deduction for physicians and other “service professionals” that are based on taxable income. Remember, taxable income is the lowest number on your tax return – it’s the number you arrive at after taking business and itemized deductions, write-offs, funding retirement plans, and taking all available tax credits.

For 1099 physicians that file as married, the 199A deduction can be fully claimed at under $340k of taxable income. It phases out between $340k-$440k of taxable income and is eliminated above $440k.

For practicing physicians filing as married, most will qualify for all or at least part of this deduction. For higher income physicians and physicians filing as single (single taxpayers have a lower taxable income limit of $175k-$225k), this deduction can be more challenging to obtain.

However, contributing to a Defined Benefit (DB) plan lowers taxable income!

So, most clients will contribute enough to their DB plan to get their taxable income low enough to capture the 199A deduction.

In fact, we do this calculation for you when we do your tax projections each year, thus optimizing this deduction for you. Calculating the 199A deduction is indeed a little more complicated. For service professions like physicians, the 199A deduction is limited to the lessor of either taxable income or the W2 wage paid to a physician by the physician’s S Corporation. This is an additional consideration that must be considered. In most situations, the deduction ends up in the multiple 5-figure range but will certainly differ for everyone.