One of the most frustrating things that business owners have had to deal with regarding the Tax Cuts and Jobs Act (TCJA) is the uncertainty that has been surrounding the new tax law revisions and how they would affect taxpayers. If you have visited with your accountant or CPA firm over the past 12 months, it’s likely that you received a confident estimate of what your 2019 tax liabilities would be as your tax planning professional awaited the IRS to release a definitive set of guidelines. In mid-January of 2019, the Treasury Department, along with the IRS issued the final 2019 IRS guidelines and regulations, as well as, additional guidance on the new qualified business income (QBI) deductions.
How Tax Law and IRS Guidance Works
In essence, when Congress enacts a tax reform law, the IRS must then summarize and interpret the laws and translate them into detailed regulations, rules, and instructions for accountants, tax preparation professionals, tax software partners, and other members of the professional tax industry. Ever since the Tax Cuts and Jobs Act passed in 2017, the IRS has been diligently working on shaping the formulas for how to calculate deductions, and deciding what types of businesses will qualify for the deductions.
Why the Wait?
You see, without actual regulations and guidance from the Internal Revenue Services (IRS) on the new tax laws, it’s been a guessing game on how the rules would match the actual act itself. While Certified Public Accountants are skilled in applying new tax laws to tax planning and tax return preparation, the IRS has had to do a significant overhaul of its policies to incorporate the tax laws. The IRS initially estimated that it would have to either create or revise over 400 taxpayer forms, instructions, and publications for the new filing season that begins on January 28th, 2019. The Treasury and IRS announced proposals for rules of the new tax law in the summer of 2018; however, several changes and clarifications were asked for by stakeholders, which has stalled the final approval of the 2019 IRS guidelines.
New IRS Guidelines at a Glance
Pass-through deductions were a significant part of the TCJA, allowing a 20% deduction of income for non-corporate business entities including sole proprietorships, partnerships, and other types of S corporations. However, there have been many questions surrounding this portion of the 2017 tax reform. With the release of the 2019 IRS guidelines, tax planning professionals are better armed with exactly what they need to ensure your tax returns are accurate and that your business can make informed decisions about tax planning matters.
A few of the other primary highlights of the 2019 IRS guidelines are as follows:
- Rental real estate activity DOES count as a trade or business which qualifies for the 20% pass-through deduction.
- Originating a loan DOES count as a business activity which qualifies for the deduction, although some types of banking activities DO NOT.
- Professional sports clubs DOES NOT count as a trade or business which qualifies for the 20% pass-through deduction.
- The IRS provided further guidance on what qualifies as a “specified service, trade or business,” which are ineligible for deduction for high-earning taxpayers.
- The IRS stated that 2018 withholding rules would remain in effect for 2019.
Contact Your Knoxville, TN, CPA For Further Guidance
With the new 2019 IRS guidelines released, now is an excellent time to be preparing your tax documentation and to contact your accountant for tax advice. The holds especially true if you engage in a type of business were uncertainty arose surrounding the 20% pass-through. The CPAs and accounting staff at Lawhorn CPA are experts on IRS guidelines and rules and have decades of experience helping individuals and business owners conduct their tax planning in an intelligent and insightful way.