Ref: HR 1 Tax Cuts and Jobs Act

Assumption: You receive income from your sole proprietorship, S corporation, LLC , partnership or other pass through entity.  Also, that entity is NOT a service business.  Example: Retail, manufacturing or leasing personal property.

Simple example:  Net income from the business is $350,000 and the business paid total W2 wages of $100,000.  Assuming no equipment placed in service in the year, the deduction would be the lesser of 20% of $350k ($70k) OR 50% of wages of $100k = $50k.  The pass through deduction is $50k.

This deduction is taken on page 2 of the Form 1040 when determining taxable income.  It is NOT taken into account in dertmining Adjusted Gross Income (AGI) on page 1 of the return.

This is a simple example.  Your pass through deduction should be calculated specifically to your tax situation.