New IRS Regulation Will Clarify Small Business Tax Cut Eligibility
On August 16th, the Internal Revenue Service will publish a regulation in the Federal Register clarifying the eligibility of pass-through entities (PTEs) for the full Qualified Business Interest (QBI) deduction created in the 2017 Tax Cuts and Jobs Act. The most important part of this new regulation for TIA members is that the definition of “brokerage services” has been clearly stated to include only financial services transactions. As a result, most TIA members that are organized as S-corporations, LLCs, partnerships, and sole proprietorships will be eligible for the full QBI deduction.
When Congress passed the Tax Cuts and Jobs Act in December 2017, it included provisions that lowered the top marginal rate for PTEs to 21%, with an additional 20% deduction from Qualified Business Income (QBI) for most entities. However, in an effort to mitigate the budgetary impact of that deduction, Congress directed the IRS to phase out the 20% deduction for “specified service businesses,” in industries including law, health care, consulting, accounting, financial services, and brokerage services. The American Institute of Certified Public Accountants (AICPA) and other groups requested a clear definition for “brokerage services,” to understand which businesses were and were not eligible for the full 20% deduction.
The IRS regulation released this week specifies that the phase-out of the QBI deduction for “brokerage services” is limited to entities arranging for transactions of financial instruments or stocks, for a buyer or seller, for a commission or fee. Transportation, real estate, and insurance brokers are examples of entities that would not have the 20% QBI deduction phased out.
To view the new IRS rule, please click here.
TIA closely monitors regulatory and legislative developments to provide members with the information they need to run their businesses. For additional information on this regulation, or other issues, please contact TIA Advocacy at email@example.com or (703) 299-5700.