What is the 199A Proposed Regulation?
The regulations for Section 199A were released on Wednesday, August 8th 2018, so many Tax Advisors are short on sleep and almost ready to roll. These regulations are exceedingly complex and it will take months of study and discussion before the major implications are fully understood. The regulations use a host of abbreviations, from QBI (“Qualified Business Income”) to UBIA (Unadjusted Basis Immediately after Acquisition – referring to Qualified Property).
As a brief reminder, Section 199A provides a 20% deduction for Qualified Business Income from flow-through entities, which includes S corporation, partnership, and Schedule C and E income as reported on a Form 1040 tax returns (commonly known as sole proprietorships). The deduction is subject to limitations based on whether the entity engages in certain services (“Specified Services” – referred to as SSTBs in the proposed regulations) or based on the amount of wages paid or Qualified Property held by the entity, and these limitations begin to apply once a taxpayer’s taxable income exceeds certain thresholds. Generally, once a taxpayer has significant taxable income ($157,500 for single filers and $315,000 for married filers), they must pass a wages or wages / Qualified Property hurdle to avoid a significant decrease in their Section 199A deduction.
Please remember that there will be inevitable errors made by those of us who draw conclusions about the regulations early in the process, and that these regulations are only proposed, and may therefore not be relied upon by taxpayers or necessarily reflect what the IRS’s position will be if and when final regulations are ever promulgated.
If you have any questions about the proposed regulations for 199A, please click here to speak to a USA Tax Prep Plus tax professional.