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IRS, Treasury issue guidance on pass-through deductions

August 08, 2018

By Jennifer Garvin

Washington — In a conference call with the Association and other stakeholders, the Internal Revenue Service confirmed Aug. 8 that small businesses with income below $315,000 for joint filers and $157,500 for single filers will be eligible for a 20 percent tax deduction on pass-through income.

The call took place just prior to the IRS and U.S. Department of Treasury issuing proposed guidance on a provision of the Tax Cuts and Jobs Act that allows owners of sole proprietorships, partnerships, trusts and S corporations to deduct 20 percent of their qualified business income. Eligible taxpayers can claim the new deduction — also known as the Section 199A deduction or pass-through deduction for qualified business income — on their 2018 federal income tax returns, the IRS said in an Aug. 8 news release.

This confirms the previous ADA position that the dental profession will benefit from the tax reform law that Congress enacted at the end of 2017.

In addition to the small business guidance, the Treasury Department said:

  • The proposed rules provide "clarity and flexibility" for filers over the $315,000 and $157,500 income thresholds by "including aggregation rules for filers with pass-through income from multiple sources; issuing guidance relating to specified service, trade or business income above the thresholds, which may be subject to limitation for the purposes of claiming the deduction; and allowing a de minimis exception to avoid unnecessary compliance costs for businesses earning only a small percentage of to specified service, trade or business income."
  • Establish "anti-abuse safeguards to prevent improper tax avoidance schemes, such as relabeling employees as independent contractors."

View the guidance here. The IRS has also issued a FAQ here.

For information on calculating W-2 Wages in regards to Section 199A, click here.

The IRS and Treasury Department will also be issuing worksheets and other tools to assist individuals and businesses with their tax preparation. The ADA will provide updates as soon as materials become available. The ADA cannot assist with individual tax advice and is encouraging dentists to consult with their accountants.