Treasury Regs Clarify 20% Pass-through Income Reduction – Part 5


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Please go back the last few weeks to read Parts 1 – 4 of the Treasury Regs to get up to speed on the changes from the new Treasury Regulations to this one section of the Trump Tax Plan.

There are at least 4 more parts to the dissection of the Treasury Regs. We also covered it in the August 15th Coaching class. The audio and Home Study Course will be up on the coaching page for 3 months from the date of the class. If you missed it live, you can still join at https://www.ustaxaid.com/coaching/ and access that plus all of the other classes and home study courses from the last three months and JOIN in on the next ones. The price goes up on 9/1/18. Join before then and your price will stay at the same price as long as you’re enrolled.

Today, we’re starting on the sixteenth change from the Treasury Regs.

Change #16: If you have a business that is part SSTB (specified service trade or business) and part non-SSTB, this change tells us when it’s considered an SSTB and when it’s not. The SSTB has stricter rules on being able to take the 20% pass-through reduction, so the non-SSTB is better.

If a blended business has gross receipts of $25 million or less and 10% or less than the total gross receipts is from services related SSTB, then you don’t have a SSTB.  If your gross receipts are more than $25 Million, then it’s 5% or less of services in order to get the non-SSTB designation.

THIS IS HUGE.

If you have a blended business, you may want to divide up the SSTB from the non-SSTB in order to take advantage of this change. Remember, though, if your taxable income is under $315K (married, filing jointly) or $157.5K (single), you get a pass. It doesn’t matter if you have an SSTB. You still get the 20% pass-through reduction on qualified business and real estate income.

If you have an SSTB, though, your ability to take the 20% pass-through reduction may be limited. The new Treasury Regulations further define when you have a SSTB and when you don’t. We’ll talk about that next.

The definition of SSTB for purposes of section 199A is (1) any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners, and (2) any trade or business that involves the performance of services that consist of investing and investment management, trading, or dealing in securities (as defined in section 475(c)(2)), partnership interests, or commodities (as defined in section 475(e)(2)).

That’s a mouthful. Let’s look at this in detail.

Change #17: Clarification of health- related SSTB

The definition of “health-related” services ” provides that the term “performance of services in the field of health” means the provision of medical services by physicians, pharmacists, nurses, dentists, veterinarians, physical therapists, psychologists, and other similar healthcare professionals who provide medical services directly to a patient.

The performance of services in the field of health does not include the provision of services not directly related to a medical field, even though the services may purportedly relate to the health of the service recipient. For example, the performance of services in the field of health does not include the operation of health clubs or health spas that provide physical exercise or conditioning to their customers, payment processing, or research, testing, and manufacture and/or sales of pharmaceuticals or medical devices.

Change #18: Clarification of law-related SSTB

“Services in the field of law” “performance of services in the field of law” means the provision of services by lawyers, paralegals, legal arbitrators, mediators, and similar professionals in their capacity as such. The performance of services in the field of law does not include the provision of services that do not require skills unique to the field of law, for example, the provision of services in the field of law does not include the provision of services by printers, delivery services, or stenography services.

Change #19: Clarification of accounting-related SSTB

The definition of accounting –related SSTB is based on the ordinary meaning of “accounting” and provides that the term “performance of services in the field of accounting” means the provision of services by accountants, enrolled agents, return preparers, financial auditors, and similar professionals in their capacity as such. Provision of services in the field of accounting is not limited to services requiring state licensure as a certified public accountant (CPA). The SSTB definition captures the common understanding of accounting, which includes tax return preparation and bookkeeping services, even though the provision of such services may not require the same education, training, or mastery of accounting principles as a CPA. The field of accounting does not include payment processing and billing analysis.

Change #20: clarification of actuarial-science SSTB

This definition of the SSTB is based on the ordinary meaning “actuarial science” and provides that the term “performance of services in the field of actuarial science” means the provision of services by actuaries and similar professionals in their capacity as such. Accordingly, the field of actuarial science does not include the provision of services by analysts, economists, mathematicians, and statisticians not engaged in analyzing or assessing the financial costs of risk or uncertainty of events.



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