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IRS, Treasury Issue Proposed Regulations on Pass-Through Deductions

 

Last week, the IRS and the Department of Treasury released their eagerly awaited proposed regulations implementing the 20 percent deduction on “qualified business income” that pass-through businesses, including sole proprietorships, partnerships, trusts, and S corporations, can take under the 2017 tax reform law, known as the “Tax Cuts and Jobs Act.” The majority of small businesses are organized as pass-throughs meaning that profits are passed on to the owner and reported on his/her individual tax return. The Section 199A deduction, commonly referred to as the pass-through deduction, will be available for tax years beginning after December 31, 2017.

The proposed regulations are intended to ensure that business owners receive the full pass-through deduction on business income up to a $315,000 threshold for married couples and $157,500 for single filers. However, the deduction is more limited for higher income businesses. Importantly for marketers, under the proposed regulations, companies will now be allowed to aggregate pass-through income from multiple sources as single business income. In addition to the proposed regulations, the IRS also released frequently asked questions about the deduction.

Last year, the White House invited PMAA to an energy tax reform discussion. PMAA argued for a lower, more competitive pass-through tax rate for businesses. Additionally, PMAA sent a letter to Senate Finance Committee Chairman Orrin Hatch (R-UT) and other committee members expressing support for a lower pass-through rate. In the letter, PMAA states, “Reducing taxes on pass-through businesses would make them more competitive, and ensure that all businesses, large and small alike, compete on a level playing field going forward.”

PMAA sits on the Small Business Leadership Council’s (SBLC) Board of Directors and provides input on tax related issues facing petroleum marketers such as the pass-through deduction. SBLC is in the process of creating a detailed summary of these proposed regulations and PMAA will forward to PMAA Association Executives once available.

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