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Archive for Section 199A

Section 199A: Tax Cuts And Jobs Act Introduction

Manasa Nadig - Section 199A 2

The biggest change that came out with the Tax Cuts and Jobs Act of 2017: Section 199A. This section allows owners of flow through entities such as Sole Proprietorships, S Corporations or Partnerships a deduction of 20% of the income earned by the flow-through. The Internal Revenue Service dropped the proposed Regs on Section 199A on August 8th, 2018, all of its 184 pages can be accessed here.

Caveat: Today’s post is a small introduction to this new section. There is a LOT more information to be culled from the 184 pages. Let us get some basics out of the way first:

  1. What is a pass through business? A pass through is a business where taxes are not levied at the entity level but rather at the owner level where the income and expenses have been passed through. The owners’ tax rates apply to this pass through income. Pass through entities are typically sole proprietorships, partnerships, LLC’s, trusts and S corporations. Only pass through entities are eligible for the Section 199A deduction.II. Do all pass-through businesses qualify for the deduction? YES, any trade or business qualifies UNLESSOne: The pass-through is a “Specified service trade or business” or SSTB.
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Section 199A Trade or Business Safe Harbor: Rental Real Estate

IRS Notice- Rental Real Estate

TD (REG-107892-18) contains final regulations concerning the deduction for qualified business income under section 199A of the Internal Revenue Code (Code). The regulations will affect individuals, partnerships, S corporations, trusts, and estates engaged in domestic trades or businesses. The regulations also contain an anti-avoidance rule under section 643 of the Code to treat multiple trusts as a single trust in certain cases, which will affect trusts, their grantors, and beneficiaries. This document also requests additional comments on certain aspects of the deduction.

Notice 2019-07 SECTION 1. PURPOSE

This notice contains a proposed revenue procedure that provides for a safe harbor under which a rental real estate enterprise will be treated as a trade or business solely for purposes of section 199A of the Internal Revenue Code (Code) and §§ 1.199A-1 through 1.199A-6 of the Income Tax Regulations (Regulations) (26 CFR Part 1), which are being published contemporaneously with this notice. To qualify for treatment as a trade or business under this safe harbor, the rental real estate enterprise must satisfy the requirements of the proposed revenue procedure. If an enterprise fails to satisfy these requirements, the rental real estate enterprise may still be treated as a trade or business for purposes of section 199A if the enterprise otherwise meets the definition of trade or business in § 1.199A-1(b)(14).

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The 20% Qualified Business Income Deduction: Section 199A

Manasa Nadig - Section 199A

2018 has been all about Tax Reform, you would probably have to be living in a cave in the United States if you did not hear about this. In this post we will talk about the biggest change that came out with the Tax Cuts and Jobs Act: Section 199A. This section allows owners of flow through entities such as Sole Proprietorships, S Corporations or Partnerships a deduction of 20% of the income earned by the flow-through.

The Internal Revenue Service dropped the proposed Regulations on Section 199A on August 8th, 2018, all of its 184 pages can be accessed here. A lot of different interpretations have been tossed around; everyone was hoping that the guidance would clear up the ambiguity. There is still much that needs to be addressed but unlike the story of the four blind men and the elephant, a solid shape is emerging out of the mist!

Caveat: Today’s post is a small introduction to this new section. There is much more information to be culled from the 184 pages.  My goal in this post is helping you glean some knowledge about Section 199A and will talk to experts about the mechanics of qualifying for the deduction.

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