The Treasury Department released a 184-page set of guidelines Wednesday seeking to clarify just who gets to claim the new 20 percent tax deduction on pass-through business incomes. Overall, the rules related to the deduction appear to be fairly generous in allowing business owners to claim the tax break, but there are questions and complaints about the seemingly random nature of who is eligible and who is denied.
While experts are still sorting through the complex rules, here are some details and early reactions:
Who gets to claim the deduction: “In general, owners of partnerships, S corporations, limited-liability companies and sole proprietorships with taxable income of $315,000 or less for joint filers and $157,500 or less for single filers. For owners with higher income, the write-off is often subject to phase-outs and limits,” The Wall Street Journal’s Laura Sanders writes. “Who doesn’t get the break: Many higher-earning owners of ‘specified service’ businesses. People in this category include doctors, dentists and pharmacists; lawyers; accountants and actuaries; consultants; performing artists; financial advisers and investment managers; and athletes and coaches, including team owners. Real-estate and insurance brokers aren’t in this category.”
Business groups got what they wanted: “Tax experts say it appears to be largely a victory for business groups, who had argued for a more generous interpretation of a deduction that the congressional Joint Committee on Taxation estimates will primarily benefit Americans earning $1 million and up,” according to the Jim Tankersley of The New York Times. The chief tax policy counsel at the U.S. Chamber of Commerce said the group is “pleased to see the proposed rule’s aggregation approach."
Trump could benefit: "Some have asked whether the new pass-through regs mean President Trump is eligible. We can’t know without him releasing his tax returns, among other things. But it appears he is partially eligible," tweeted New York University School of Law tax expert Lily Batchelder.
And Democrats have another opening to criticize the GOP tax law: “These new rules confirm that the fortunate few win and Mom-and-Pop shops lose under Trump’s tax law,” said Senate Finance Committee ranking member Ron Wyden (D-OR). “Small business owners searching for clarity aren’t getting pulled out of a bureaucratic twilight zone any time soon. Many are still left wondering whether their business is blacklisted. For high fliers, the path ahead is paved in gold. Tax planners are already scouring through the nearly 200 pages of regulations in search of new ways to keep wealthy clients from paying their fair share.”
For a comprehensive look at the new rules, see Tony Nitti’s lengthy analysis at Forbes.