Has the 199A Deduction Helped Cooperatives

Cooperatives have a separate 199A deduction that allows them to either reduce their income or their patron's income. Will this continue?

Photo by Jim Witkowski on Unsplash

We had a reader ask us if the Section 199A deduction available to cooperatives that was not available to other non-cooperative businesses helped them be more competitive.

When the Tax Cuts and Jobs Act was originally enacted, there was a provision that allowed a 20% deduction equal to 20% of gross sales, not net income, for any “cooperative”. Everyone thought this was strictly for an agricultural cooperative, but the actual law indicated it was for any cooperative.

This led to speculation that almost all businesses would create cooperatives to get a 20% of the gross sales deduction. Congress found out and eventually changed 199A to shrink the deduction to 20% of the net income from an Ag cooperative only.