IRS, Treasury Clarify QBI Tax Deductions

internal revenue srvice

The Treasury Department and Internal Revenue Service’s recently released tax guidance on qualified business income deductions will help advisors “make better decisions for their clients,” according to Leon LaBrecque, an advisor and CPA with Sequoia Financial Group in Troy, Michigan.

On Friday, the Treasury and IRS released the following:

A set of regulations finalizing proposed regs issued last summer, as well as new proposed regulations providing guidance on several aspects of the QBI deduction, including qualified REIT dividends received by regulated investment companies;

A revenue procedure providing guidance on determining W-2 wages for QBI deduction purposes; and

A notice on a proposed revenue procedure providing a safe harbor for certain real estate enterprises that may be treated as a trade or business for purposes of the QBI deduction.

The new QBI deduction, created by the 2017 tax law, allows many owners of sole proprietorships, partnerships, S corporations, trusts or estates to deduct up to 20% of their qualified business income.

Eligible taxpayers can also deduct up to 20% of their qualified real estate investment trust (REIT) dividends and publicly traded partnership income, the IRS and Treasury explain.

The QBI deduction is available in tax years beginning after Dec. 31, 2017, which means that eligible taxpayers will be able to claim it for the first time on their 2018 Form 1040.

The IRS and Treasury also explained that the QBI deduction is generally available to eligible taxpayers with 2018 taxable income at or below $315,000 for joint returns and $157,500 for other filers.

Financial advisors can claim the deduction “only if their income is less than $315,000,” said Andy Friedman of The Washington Update, who’s a former tax attorney, which likely makes such a deduction “irrelevant” for most advisors.

Those with incomes above these levels are still eligible for the deduction but are subject to limitations, such as the type of trade or business, the amount of W-2 wages paid in the trade or business and the unadjusted basis immediately after acquisition of qualified property, the final regs state.


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