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BUSINESS Saturday 12 January 2019
A25

Small business tax deduction has CPAs scratching their heads

By JOYCE M. ROSENBERG that owns real estate as
Associated Press investment property, you
NEW YORK (AP) — Millions probably can aggregate,”
of small business owners Farra says. But someone
will be in uncharted waters who owns a cleaning ser-
this tax season as they try vice and an auto servicing
to determine if they qualify shop wouldn’t be able to
for a deduction that could aggregate their income.
exempt one-fifth of their in- QUESTIONS AWAITING AN-
come from taxes. SWERS
Five months after the IRS The guidelines the IRS is-
issued guidelines to help sued in August aren’t set in
business owners and tax stone although the agency
advisers understand how said taxpayers could rely
the complex deduction on them in compiling their
works, accountants and 2018 returns. The agency
tax attorneys still have has issued proposed regu-
questions. Even those who lations, and tax profession-
have attended seminars als have already asked the
and workshops about the IRS to clarify a number of
new law have come away issues, including which ser-
scratching their heads, es- vice providers can claim
pecially about a section the deduction. For exam-
that bars service providers In this Dec. 22, 2017, file photo President Donald Trump speaks with reporters after signing the ple, the New York State Bar
like doctors, lawyers and tax bill and continuing resolution to fund the government in the Oval Office of the White House in Association, which asked
consultants from claim- Washington. the IRS for multiple clarifi-
ing the deduction. Some Associated Press cations, said many taxpay-
of these company owners or industry — and earnings that work. But the same op- not show the data CPAs ers, including those who
have businesses that don’t from investments. tometrist who also sells eye- will need to know,” Dotson and rent a small number of
easily fit into the IRS guide- If taxable income is above glasses and contact lenses says. In that case, either real estate properties, may
lines or proposed regula- the $157,500 or $315,000 may be able to use the de- the owner has to go back be uncertain about wheth-
tions the agency has also threshold, owners may get duction for that income. and change the books, or er the deduction applies to
issued. “There’s a lot of con- a partial deduction. There Another example: A graph- pay extra to have their tax them.q
flicting advice out there,” are two critical factors that ic designer who consults advisers do the work.
says Jeffrey Berdahl, a CPA can limit the size of the with clients but also creates Owners who have more
with RLB Certified Public break. The first involves the websites. “You’re consult- than one business with em-
Accountants in Allentown, company’s W-2 wages, or ing, but also selling a prod- ployees may be able to
Pennsylvania. “It’s going to how much it pays employ- uct,” Berdahl notes. aggregate, or combine the
be like the Wild West.” ees, and the value of some There might be some un- qualified business income
THE BASICS of its property; complex pleasant surprises when of the companies, and
The deduction is aimed at calculations go into assess- owners in such situations lower the impact of W-2
giving tax breaks to sole ing the impact of wages get to their CPA’s offices. wages on the deduction,
proprietors, partners and and property on the de- The new law requires sepa- says Miguel Farra, a CPA
owners of S corporations; duction. The second factor rate records for the differ- and tax attorney with MBAF
these businesses are known affects owners who are in ent types of work. in Miami. But the businesses
as pass-throughs because what’s called a specified “They might find their books must be in a related indus-
company income “passes service trade or business — may not be in good shape try. “If you are a real estate
through” to owners’ 1040 for example, health provid- for tax reform — they may developer and somebody
forms, where it is reported ers, attorneys, accountants
to the IRS. Before the law or consultants. They have
was enacted, many of no deduction if their tax-
these owners couldn’t get able income is more than
the more favorable tax $207,500 for an individual
treatment enjoyed by tra- or $415,000 for a married
ditional corporations, those couple.
known as C corporations. The IRS spells out the con-
The new law allows many ditions for taking the de-
owners to deduct 20 per- duction on its website. Visit
cent of what’s called quali- https://bit.ly/2RbxOtc .
fied business income. They MORE THAN ONE ACTIVITY
can get the full deduction OR BUSINESS?
as long as their taxable Owners whose businesses
income doesn’t exceed involve a variety of activi-
$157,500 for an individual ties may find that income
and $315,000 for a married from some qualify for the
couple filing jointly. But tax- deduction while others
able income includes own- don’t, says Angela Dotson,
ers’ and spouses’ earnings a CPA with Aprio in Atlanta.
from outside the business An optometrist who treats
— for example, being em- patients may not be able
ployed in a different field to claim the deduction for