IRS Releases Eagerly Awaited Guidance on Deduction for Business Owners

21 August 2018
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Key takeaways:
  • The IRS has issued proposed regulations providing important guidance on the new deduction of up to 20% for qualified business income (“QBI”) of a U.S. business conducted as a sole proprietorship or in pass-through form.
  • The regulations provide guidance on specified service trade or businesses (SSTBs), which do not benefit from the QBI deduction, and provide a helpful limitation on the reach of the “reputation or skill” catch-all provision for SSTBs.
  • The regulations also introduce an anti-abuse rule designed to limit crack and pack strategies considered by some taxpayers to segregate ancillary business from SSTBs.
  • The regulations also include rules for computing the QBI deduction limit based on W-2 wages and/or cost basis of certain depreciable assets, including rules that allow taxpayers to aggregate related businesses and rules addressing the netting of losses from one qualified business with income from other qualified businesses.