<table><tr><th>From:</th><th>Faith Kates a&gt;</th></tr><tr><td>Sent:</td><td>Sunday, December 31, 2017 8:39 PM</td></tr><tr><td>To:</td><td>jeevacation@gmail.com</td></tr><tr><td>Subject:</td><td>Fwd: wages vs flow-through</td></tr></table>

From Michael

Faith/Joel--You are no doubt awar= of the so-called "pass-thru" deduction for "QBI"--new=Code section 199A (non-compensation,non which should apply guaranteed to your interests payment) in Next income so as you to re=uce derive somewhat from Next. your The new individual law is taxes =xtraordinarily on the complicated-- and requires many variable calculations appli=able to your particular business. Therefore the net tax savings must await=detailed analysis. The calculation below is but one simple part of the equation. One thing that is clear,however, i= that "compensation" above certain amounts and "guaranteed =ayments" are "bad" for purposes of the new provision--- &quo=;Flow-through" income is treated preferentially. New law applies in 2018---it should benefit you ---attorneys and accountants don't get the be=efit--nor do "employees". Happy New Year to everyone. (Gar=---we will somehow survive this 1,067 page abomination.)

Suppose Taxpayer is a partner or S corp shareholder and there are $100 of profits that can be paid either as wages or distrib=ted as flow-through to Taxpayer. (I understand that a tiered structu=e would be needed to pay wages to Tin partnership form.) Suppose T's share of wages paid to others is $W=/p>

The optimal distribution between wages and f=ow-through is this—

Wages to T: $28.6 – .714W

Flow-through to T: $71.4 + .714W

Total to T: $100

For example, simplifying by assuming there are no =hird•party wages, $100 of earnings for T should be divided $28.6 wages and=$71.4 flow•through. That way 20% of flow-through (.2 x $71.4 = $14=3) is equal to 50% of wages (3 x $28.6 = $14.3).