The IRS has issued 128 pages of proposed regulations clarifying the application of the new 20% pass-through income deduction. The main takeaway is that the regulations are quite pro-taxpayer. For instance, the law states that the 20% deduction is not available to businesses “where the principal asset is the reputation or skill of one or more employees or owners” (unless the taxpayer’s taxable income is below certain thresholds). The regulations, however, state that this catch-all applies only to certain limited situations such as when a taxpayer receives a royalty or license fee for their services.
We are still digesting these important regulations. Please contact us to discuss how they affect your specific tax situation.