Qualified business income deduction regs. proposed
The IRS issued proposed regulations on Wednesday regarding the qualified trade or business income deduction under Sec. 199A, which was enacted by P.L. 115-97, the law known as the Tax Cuts and Jobs Act (TCJA) (REG-107892-18). At the same time, it issued Notice 2018-64, which provides guidance on how to compute W-2 wages for purposes of the deduction, along with FAQs. The proposed rules include a way that taxpayers can group or aggregate separate trades or businesses and an anti-abuse rule designed to prevent taxpayers from separating out parts of an otherwise disqualified business in an attempt to qualify those separated parts for the Sec. 199A deduction.
The deduction, which is in effect for the first time in 2018, allows owners of sole proprietorships, partnerships, trusts, and S corporations to deduct 20% of their qualified business income (QBI).
The deduction is generally available to taxpayers whose 2018 taxable incomes fall below $315,000 for joint returns and $157,500 for other taxpayers. The deduction is generally equal to the lesser of 20% of the taxpayer’s QBI plus 20% of the taxpayer’s qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income, or 20% of taxable income minus net capital gains. Deductions for taxpayers above the $157,500/$315,000 thresholds may be limited; the application of those limits is described in the proposed regulations.
The IRS is requesting comments on all of the proposed rules, which must be received within 45 days of the date they are published in the Federal Register. The Service noted that, although the rules will not be effective until published as final in the Federal Register, taxpayers may rely on them until then. Read more on the Journal of Accountancy.