Regulations on Qualified Business Income Deductions

The IRS recently issued some proposed regulations related to the qualified trade or business income deduction. It also issued guidance related to how to compute W-2 wages for the deduction. These rules include a way for taxpayers to group trades or businesses, They also include an anti-abuse rule that was created with the purpose of preventing taxpayers from separating parts of a disqualified business in order to try and qualify for the deduction.  

Those who do qualify for the deduction, however, will be able to deduct 20% of their qualified business income. So, who qualifies for the deduction?

Well, for starters, owners of proprietorships, partnerships, trusts, and S corporations may qualify. However, they must have taxable incomes below $315,000 for joint returns and below $157,000 otherwise. Deductions are possible for those above the threshold, but they are limited.

The IRS is interested in what people have to say about the proposed rules and is requesting comments on them. These comments must be received within 45 days of the date they are published in the Federal Register. And, while the rules are not “official” yet, they can be relied on up until the date they are published in full in the Federal Register, at which point they will become official.

These rules include various operational rules, such as how to determine the deduction for taxpayers with incomes at or below the threshold amounts. They also include important definitions, such as what defines a trade or business. There are even rules for determining W-2 wages and the UBIA of qualified property, among others.

With so many new rules- these are just a few- it is normal for taxpayers to have questions and concerns, which they are encouraged to address with their tax advisers.