Prior to the Tax Cuts & Jobs Act of 2017, owners of partnerships, S corporations, and sole proprietorships – as “pass-through” entities – pay tax at the individual rates, with the highest rate at 39.6 percent. Now, H.R. 1 allows a temporary deduction in an amount equal to 20 percent of qualified income of pass-through entities, subject to a number limitations and qualifications. As well as a reduction in the threshold amount above. The new law also contains rules that will prevent pass-through owners – particularly service providers such as accountants, doctors, lawyers, etc. – from converting their compensation income taxed at higher rates into profits taxed at the lower rate.
Morrison Foerster will discuss the prior law, current law, and focus on the following areas:
- Elimination of miscellaneous itemized deductions
- Impact on investment management fees and investment fund structures
- New 20% deduction for “qualified business income”
- Business income earned through pass-throughs
- Treatment of services income
- REIT dividends
- MLP income deduction for qualified business income.