An aspect of tax reform that could provide significant savings for owners of pass-through businesses will also require plenty of work to claim.
One part of the tax bill passed at the end of last was allowing a 20 percent deduction on income from pass-through businesses. But it’s not as simple as it may seem. The IRS recently issued 180 pages of guidelines for the pass-through business deduction.
According to USA Today, even with the new guidelines, there will be plenty of room for interpretation of just who qualifies for the deduction and who doesn’t. The newspaper reports:
The new rules affirm the requirement in the tax law that certain business owners like lawyers, accountants, doctors and consultants can’t qualify for the full deduction if their annual income exceeds $157,000 for single tax filers and $315,000 for couples filing jointly. The amount of the deduction to be claimed declines as taxpayers’ income rises. The same is true for interior designers, investment managers, therapists and others.
Many small business owners around the country have been yearning for months to know whether they’ll be pass-through winners or losers. Even with the new regulations, many owners still will likely be turning to tax accountants and other specialists to cut through the confusion.
As USA Today notes, the range of pass-through businesses is huge, from mom-and-pop stores to hedge funds and The Trump Organizations. That range drives up the complexity of the new tax law.
According to Forbes:
The proposed regulations for Section 199A take up a whopping 184 pages. The guidance on W-2 wages constitutes an additional 14 pages. And there is more guidance likely to come.
So how much time will it take to get taxpayers up to speed? The proposed regulations could tack on 25 million hours in new annual reporting requirements for 10 million corporations and partnerships. The average increased reporting burden—on a flat scale—works out to 2.5 hours per affected taxpayer per year.