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:
- 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.