The U.S. Treasury Department and IRS today released proposed regulations (REG-107892-18) concerning a provision enacted under the new tax law that allows certain owners of sole proprietorships, partnerships, trusts, and S corporations to deduct 20% of their qualified business income.
The IRS also released in connection with the proposed regulations a list of “frequently asked questions” (FAQs) and Notice 2018-64 as a proposed revenue procedure for guidance on methods for calculating W-2 wages for purposes of section 199A.
It is important to note that taxpayers may rely on the proposed regulations in their entirety prior to finalization.
The new deduction under section 199A was added to the Code by the tax law (Pub. L. No. 115-97) enacted December 22, 2017. The 20% deduction generally is available for qualified business income of certain non-corporate taxpayers (including income from publicly traded partnerships and qualified REIT dividends) for tax years beginning after December 31, 2017. Eligible taxpayers can claim the 20% deduction for the first time on their 2018 federal income tax returns.
The IRS and Treasury Department today released text of the proposed regulations in advance of their release for publication in the Federal Register. According to a Treasury release, the proposed regulations:
Qualified business income includes domestic income from a trade or business. Income earned as an employee, capital gains, interest, and dividend income are excluded from this definition. A taxpayer’s ability to claim the 20% deduction with regard to that income may be limited by a W-2 wage or W-2 wage and qualifying basis limitation.
The proposed regulations (184 pages) provide guidance on how to compute the 20% deduction, define certain terms, and include anti-avoidance guidance under section 199A.
The proposed regulations are organized by the following subsections:
The following discussion summarizes and lists certain items that stand out on initial review of the proposed regulations and related IRS guidance. KPMG expects to issue a more detailed discussion of the proposed regulations in the near future.
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