The Tax Cuts and Jobs Act added 26 USC § 199A, which gives a 20% deduction for taxpayers' "qualified business income." This was intended to give small business owners a deduction to match the corporate tax cut. However, it does not apply to all small business owners, and reading the law and determining who qualifies can be quite confusing.
There are many nuances with this law involving earnings caps, business types, and other random things that you should go over with your accountant and/or lawyer, but the basic requirements are that you're a pass-through business owner who makes less than ~$200,000 (or ~$400,000 if married) and you work in one of the allowed jobs.
Pass-Through Business
To qualify, you must receive the income taxable to you personally or to a trust. The very first phrase of the section is "In the case of a taxpayer other than a corporation…." If your earnings are attributed to a corporation (i.e., it's a C-Corp), then this section isn't for you. This obviously means if you're a sole proprietorship—just a person working and getting paid directly without an employer or legal complication—then you're good here. (Note: it does not apply to employee wages.) But it also applies if you have a legal entity but its taxes "pass through" to you. So if you own at least part of an S-Corp, a partnership, or an LLC taxed as either, then you satisfy this hurdle.
In addition, if you're the beneficiary of a trust you created, you report such items on your own tax return, so you could use §199A as an individual in such a case. And non-grantor trust is not a corporation so it can use §199A for its taxes, even though its taxes are not pass-through on undistributed earnings. Beneficiaries of non-grantor trusts also have the possibility of getting a §199A deduction as they individually receive such income on their K-1s.
Earnings Cap
26 USC § 199A(e)(2) sets the threshold amount at $157,000 for 2018, doubles it for married couples, and increases it for inflation in later years. So if you make less than $157,000/$314,000, you're good. 26 USC § 199A(b)(3)(B) also gives a phased-in partial deduction if you make less $50,000/$100,000 more than that.
Qualified Trade or Business
The last and most confusing part is determined just what a "qualified trade or business" is. 26 USC § 199A(d)(2) defines it as anything but a "specified service trade or business" by multiple negative reference to another section. To simplify this by interpolating the references, §199A(d)(1) ends up as:
The term “qualified trade or business” means any trade or business other than—
(A) [any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees or owners], or
(B) [which involves the performance of services that consist of investing and investment management, trading, or dealing in securities (as defined in section 475(c)(2)), partnership interests, or commodities (as defined in section 475(e)(2))], or
(C) the trade or business of performing services as an employee.
So obviously not employees. (Even of your own company, so you may want to lower your wages as low as would still be reasonable wages for this and other reasons. For §199A(b)(2)(B), your wages should ideally 40% as large as your pass-through gain is.) But then it's just essentially "any business except solely skill-based services or investing." The only exception to this is that it makes a exceptions for engineers and architects. (I guess they have better lobbyists than us lawyers.) Farmers also get special complicated limitations later.
Also, note that the included engineers (via excluding them from being SSTBs) do include software engineers, a.k.a. programmers. Also, while consulting is excluded as an SSTB, sales, training, education, staffing, and licensing are similar fields that are included. Many examples of edge cases concerning SSTBs can be found in 26 CFR § 1.199A-5(b)(3).
For a real estate business to qualify under §199A, its rental services and other business activity must rise to the level of being a trade or business under §162, which is going to be very fact-dependent on how involved it is in the management of the property. The IRS has a safe harbor for this of 250+ hours of rental services per year. Landlords with less involvement than this can qualify, but it's going to be fact dependent. Triple net leases will not as they are too close to just passively investing, but many other leases will.
So if your business's primary assets are equipment, products, buildings, IP, or money and your business isn't just investing said money, you're good. If you're an engineer or architect, you're good. Otherwise, the Section 199A deduction is sadly not for you.
Do I Have to Materially Participate in the Business to Claim the §199A Deduction?
No, the §199A deduction is made at the entity level. If the LLC, corporation, or trust is participating in a trade or business (not just investing or doing something as a hobby), all owners can claim the deduction therefore. Source
The above is my understanding of the law. I am a lawyer, but I am not your lawyer. This post does not constitute legal advice. I make no warranty as to its accuracy or applicability to you. If you need a lawyer, get a lawyer. If you want me specifically, hire me.