Market Overview

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

Share:

Wolters Kluwer Tax & Accounting Helps Pass-Through Businesses
Identify the Associated Tax Issues

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:

NICOLE YOUNG     BRENDA AU
347-931-1055 847-267-2046

N.Young@wolterskluwer.com

Brenda.Au@wolterskluwer.com

 

View Comments and Join the Discussion!