In January, the Treasury Department issued final regulations and other guidance on a substantial provision of the Tax Cuts and Jobs Act (TCJA). The bill allows owners of sole proprietorships, partnerships, trusts, and S corporations to deduct up to 20 percent of their qualified business income. Many business owners and accountants had anxiously awaited final regulations on this element of the TCJA since President Trump signed it into law in December 2017. The final regulations seemed to ensure that this significant tax cut was available to a broad spectrum of American businesses for fiscal year 2018, including many heating oil and propane dealers and HVAC service contractors.
The final regulations and other guidance are available online at irs.gov. For more information on whether or not your business qualifies for the 20-percent business tax deduction, please consult your accountant or tax professional. Also note the tax filing deadlines listed at the end of this article.
Writing about the TCJA in a March 2018 article, Derek Rawls, CPA, of Gray, Gray & Gray, LLP, pointed out that the 20-percent deduction could “be taken regardless of whether a taxpayer takes the standard deduction or itemizes deductions” (see “The Most Important Things to Know About the New Tax Law,” Oil & Energy, Volume 20/Issue 2).
It is estimated that between 17- and 40-million American business owners are able to take advantage of the deduction. It is generally available to small-business owners with income below $315,000 for married couples filing jointly and $157,500 for single filers without limitations. For business owners above those thresholds, the regulations also clarify the definitions of “specified service trade or business” and “unadjusted basis immediately after acquisition” of qualified property, and include “aggregation rules” for filers with pass-through income from multiple sources. Treasury also issued a revenue procedure on computing W-2 wages for purposes of the limitations that apply to owners with income above the threshold amounts.
The Treasury issued further related proposed regulations for determining the deduction for REIT dividends taxpayers own through mutual funds and a proposed revenue procedure providing a safe harbor, so that certain rental real estate enterprises may be treated as a trade or business for purposes of the deduction.
The 2019 tax deadline for partnerships and S corporations was March 15, with a September 15 extension deadline for these entities. The tax deadline for C corporations and sole proprietorships is April 15, with an October 15 extension deadline.