New Guidance on Sec. 199A’s 20% flow-through deduction will be available any day

The new 20% deduction applicable to certain flow-through income is one of the most significant features of last December’s Tax Cuts and Jobs Act. As explained in a January BNN article, the text of this new rule, provided in new Internal Revenue Code Section 199A, is complex and often ambiguous. We have been awaiting promised guidance in the form of Treasury Regulations, and it now appears that the release of that guidance is imminent.

The Treasury Department has provided a copy of its proposed guidance to the U.S. Office of Management and Budget (“OMB”). Under special rules designed to quickly administer the Tax Cuts and Jobs Act, OMB has a much shorter window than usual (in this case 10 days), to review Treasury’s guidance. After the OMB review, it should be made available to us. We are hopeful the guidance will clarify issues like the following:

  • How is a trade or business activity defined under Section 199A?  Does it include rental income?
  • What does qualified business income (QBI) include?
  • How to group and net qualified business income or losses from different activities.
  • Clarification and examples of what is a specified service trade or business.
  • How to compute W-2 wages for entities that lease employees or use a common paymaster.

Readers can expect that we will immediately review the new Regulations and explain their impact via an alert shortly thereafter. Look for our update in just a few days. Sign up here to receive our alerts first directly to your inbox.

Posted Under: 199A, Flow-through income, Tax Cuts & Jobs Act, Tax reform

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