Tax Preparer’s Be Aware

The IRS has recently released proposed regulations regarding the passthrough entity deduction. 199A has been talked about frequently since its implementation and now the IRS has responded. We’ll take a short look at some of the proposed regulations that will likely be decided upon in mid-2019.

Proposed regulation 1.199A has six main parts that offer varying definitions and clarifications for accountants and tax attorneys. First, they provide operational rules, which helps determine the deduction for taxpayers that fall below the threshold set by section 199A. Next, in 1.199A-2 contains the rules for determining W-2 wages and UBIA of qualified property, both of which are part of the calculation for the deduction. 1.199A-3 restates definitions in 199A(c) for better clarification and better information on the QBI, qualified REIT dividends, and qualified PTP income. Section 1.199A-4 provides rules on aggregation, including the continuity standard that requires if you aggregate for one year, you should be expected to for the following years. Another issue people were dealing with were how to define the specified service trades or business, and how to define them which is answered in 1.199A-5.

With many taxpayers of small businesses likely to be asking about the 199A deduction because of its popularity within the TCJA. It will be important for tax preparers to understand what is required of them when deciding on how to calculate the deduction. Further information on the regulations can be found here https://www.irs.gov/pub/irs-drop/reg-107892-18.pdf. If you have questions regarding how it reads or how to apply it, contact us at the Center for Financial, Legal & Tax Planning, Inc.