Proposed Pass-through Regulations Released

Regulations would benefit small and midsize businesses.
August 09, 2018

Yesterday the U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued proposed regulations that would allow pass-through entities to deduct 20% of their qualified business income. When the U.S. Congress passed the Tax Cuts and Jobs Act in 2017, it created provisions to provide businesses such as sole proprietorships, partnerships, trusts and S corporations with a 20% tax deduction for qualified pass-through income that is taxed at individual income tax rates, effectively taxing them at a similar rate as corporations.

The entirety of small business income below $315,000 for married couples filing jointly and $157,500 for single filers is eligible for the deduction under the proposed rules. Furthermore, the proposed rule allows businesses with multiple sources of pass-through income to aggregate so that they receive the full tax deduction. The IRS released a FAQ document to accompany the proposed rule.

“Treasury’s proposed rules are a good start to making the pass-through deduction workable for Main Street businesses,” said Brian Reardon, president of the S Corporation Association. “There are many important details to clarify, and we have specific concerns about some of the definitions and reporting requirements, but the overall approach taken by Treasury is positive and should be applauded. Our goal is to make certain the 20% deduction is available to real businesses with real employees. We will use the comment period to clarify our remaining concerns,” he said.

Comments on the proposed rule will be due within 45 days of its publication in the Federal Register. NACS counsel is analyzing the proposed rule and will provide further information to NACS members.