[August 16, 2018]

Proposed Regulations on 20 Percent Pass-through Deduction Create Winners and Losers

Wolters Kluwer Tax & Accounting:

What: The Tax Cuts & Jobs Act, enacted in December 2017, created a new deduction for 20 percent of qualified business income of pass-through businesses, including partnerships, S corporations, sole proprietorships, estates and trusts. This new complex provision in Code Sec. 199A was effective as of January 1, 2018, less than one month after its enactment. Now, eight months after enactment, on August 8, 2018, the IRS has issued proposed regulations on that deduction. At 184 pages, the proposed regulations address a number of the complex questions created by the new deduction and include many details that warrant professional tax assistance to take maximum advantage of the new provision.

Why: Owners of pass-through businesses have been anxious to understand the new deduction and seek assistance of tax professionals in order to structure their businesses to take maximum advantage of this new deduction that is effective for the current 2018 tax year. Among the top issues to note:

• The proposed regulations provide a broad definition of what is a trade or business for purposes of the deduction, including rental and licensing of tangible or intangible property related to a trade or business
• The proposed regulations define what is qualified business income for purposes of the deduction
• The reasonable compensation exception to qualified business income is limited to S Corporations
• Aggregation rules are provided for taxpayers with pass-through income from multiple sources
• The deduction starts to automatically phase-out above certain income limits for specified service businesses
• For other businesses, above those income limits, the deduction starts to depend on the amount of W-2 wages and qualified property, which are defined in the proposed regulations
• Anti-abuse provisions are included to address converting employees to independent contractors or splitting up activities or trusts to reduce taxes

Who: Tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst at Wolters Kluwer Tax & Accounting, is available to discuss the 20 percent deduction and the provisions of the new proposed regulations.

Contact: To arrange interviews with Mark Luscombe or other federal and state tax experts from Wolters Kluwer Tax & Accounting on this or any other tax-related topics, please contact:

View source version on businesswire.com: https://www.businesswire.com/news/home/20180816005415/en/

[ Back To TMCnet.com's Homepage ]