On Monday, the IRS issued a draft worksheet form Publication 535 to help taxpayers calculate a 20% deduction on qualified business income from pass-through entities for 2018.
The worksheet is still in draft form because regulations outlining how the qualified business income deduction should apply are not yet final. In August, the IRS issued a draft regulation. While changes are likely to occur to any final regulation, the IRS has confirmed the draft regulation can be used for tax planning purposes until final regulations are issued.
Final regulations are expected in January or February; however, the ongoing partial government shutdown could cause a delay.
Under the draft regulation, most owners and shareholders of insurance agencies and brokerages can take a 20% tax deduction on qualified business income—regardless of their taxable income levels—because the draft does not consider insurance agents and brokers to be a “specified service trade or business.” The Big “I” advocated before Congress and the Treasury Department for insurance agencies and brokerages to not be considered a “specified service trade or business” in the draft regulation.
The worksheet aligns with the draft regulation, noting that insurance agents and brokers are not considered a “specified service trade or business.”
A previous version of the 535 worksheets—released mid-December—stated that insurance agents and brokers would be consitaxedered a “specified service trade or business,” contrary to the draft regulations, meaning that some agents and brokers would lose the benefit of the 20% tax deduction based on their taxable income levels. The Big “I” took immediate action, alerting other key stakeholders and contacting key officials at the Treasury Department and the White House to identify the error and request a correction. This advocacy resulted in the revised worksheet being issued this week.
The Big “I” will continue to work with the Trump Administration on the draft regulations and will alert members via the News & Views e-newsletter when the regulations are final. More information for Big “I” members on the deduction and the tax law is available in the tax section of the Big “I” website.
Jennifer Webb is Big “I” federal government affairs counsel.