January 21, 2019

IRS Issues Final Rules On TJCA Pass Through Deduction

On Friday, Jan. 18, the Internal Revenue Service (IRS) released its final rules for implementing the tax deduction for pass-through businesses that Congress passed in late 2017. The 20 percent deduction, as outlined in the 2017 Tax Cuts and Jobs Act (TJCA), is available only to some pass-through businesses and the regulations released last week are an attempt to clarify which businesses are eligible.

In general, taxpayers with 2018 taxable income at or below $315,000 for joint returns and $157,500 for other filers can utilize the deduction. Taxpayers with incomes above these levels are still eligible for the deduction but are subject to limitations. Those limitations are fully described in the IRS’ final regulations, which are available here.

The Metals Service Center Institute is still analyzing the rule and will have additional information in the weeks ahead.

What is clear is that the IRS did not adjust so-called “de minimis” rules, which stipulate when companies with different lines of businesses, some of which may qualify for the deduction and some that may not, can take the deduction. As Forbes explains, “For a business with gross receipts of less than $25 million, if 10 percent or less of the gross receipts are attributable to the performance of services in a disqualified field, the service income is ignored.” For companies that can take the full 20 percent deduction, it’s estimated that the provision will reduce the top effective rate on businesses that can use the deduction from 37 percent to 29 percent.

Stay tuned to Connecting the Dots for more information on these regulations.