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Bamboo Associates is an S corporation for federal tax purposes owned equally by Mike and...

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Accounting

Bamboo Associates is an S corporation for federal tax purposes owned equally by Mike and Jack. Bamboo, Mike, and Jack are all calendar year cash method taxpayers. Mike and Jack each file "Single" returns. Bamboo sells hand-crafted furnishings and other home dcor items it acquires from unrelated artisans. Bamboo also provides interior decorating consultation services to customers purchasing significant quantities of goods. Neither Mike nor Jack are employed by Bamboo. Each of Mike and Jack have taxable income of $100,000 from sources other than Bamboo. Neither has net capital gain, qualified REIT dividends or qualified PTP income. In 2018, Bamboo's sales were $13 million and it made an additional $2 million from its decorating consultation services. Its cost of goods sold was $9 million, it paid $500,000 in wages to its employees, and had $3.5 million in other deductible expenses (inclusive of both the furniture sales and consulting activities). Bamboo has no qualified property.

Question: Are Mike and Jack eligible to take a 199A deduction in relation to the net income that flows through to them from Bamboo in 2018? If not, why are they ineligible? If they are eligible, how much would each of Mike and Jack be permitted to deduct?

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