Pension & Benefits News IRS releases proposed regs and rev. proc. for Code Sec. 199A pass-through deduction
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Wednesday, September 26, 2018

IRS releases proposed regs and rev. proc. for Code Sec. 199A pass-through deduction

By Pension and Benefits Editorial Staff

The IRS has released guidance on new Code Sec. 199A, commonly known as the “pass-through deduction” or the “qualified business income deduction,” that includes proposed regulations and an IRS notice that contains a proposed revenue procedure.

Code Sec. 199A allows business owners to deduct up to 20% of their qualified business income (QBI) from sole proprietorships, partnerships, trusts and S corporations. The deduction, which is part of the provisions of the Tax Cuts and Jobs Act (P.L. 115-97), has raised concerns that small business owners may elect to pay tax on income at the lower pass-through rate, rather than contribute the income to a qualified plans.

In addition to providing general definitions and computational rules, the new guidance helps clarify several points that are of special interest to taxpayers, including what constitutes a trade or business, and issues concerning a “specified service business,” and the wages/capital limit.

Taxpayers may generally rely on the proposed regs and the proposed revenue procedure in the IRS notice until they are issued as final. The regs and the proposed revenue procedure will generally be effective for tax years ending after they are published as final.

Source: IRS proposed regulations, 83 FR 40884.

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