--(BUSINESS WIRE)--Wolters Kluwer Tax & Accounting:
What: The Tax Cuts and Jobs Act created a new deduction for owners of pass-through businesses of up to 20% of qualified business income of the trade or business, with special rules for specified service trades or businesses. The new deduction was effective for 2018, a couple of weeks after enactment, but the statute left a lot of uncertainty, including: what is a trade or business, what is qualified business income, what is a specified service trade or business, and how is the deduction calculated. Lengthy proposed regulations issued in August 2018 addressed many of those questions but sought further comments on many issues as well. Finally, in January 2019, final regulations and additional proposed regulations were issued to provide further guidance.
Why: The 20% pass-through deduction was one of the most beneficial but also most complicated provisions of the new tax law. It affects owners of pass-through businesses, such as partners and shareholders of S corporations, and also sole proprietors. Part of the complexity comes from the fact that it is a deduction on the individual tax return but requires input from the business to calculate the correct deduction. It is so complicated that many pass-through owners will require professional tax assistance to properly plan for and calculate the deduction. Some of the issues addressed by the latest set of regulations include:
- In a very unusual provision, taxpayers can choose to rely on either the proposed regulations or the final regulations for 2018 tax returns
- An IRS notice provides a safe harbor for when rental real estate can be considered a trade or business that qualifies for the deduction based on a “250 hours of service” requirement
- Contemporaneous documentation of the hours of service is waived for the 2018 tax year
- Rental of personal residences and triple net leases do not qualify under the safe harbor
- Proposed regulations were issued involving mutual funds, real estate investment trusts, and certain trusts and estates
- A number of changes and clarifications were made from the proposed regulations
- The provisions of the proposed regulations were generally finalized
Who: Tax expert Mark Luscombe, J.D., LL.M, CPA, Principal Federal Tax Analyst for Wolters Kluwer Tax & Accounting, is available to discuss the potential tax issues surrounding the new final regulations and related IRS releases on the pass-through deduction.
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: