As briefly touched upon earlier this week, when it comes to the recently instated Republican tax law, one thing is clear: from business owners and CPA’s, to the IRS themselves, no one really knows who exactly qualifies for the promised deduction.
Established to give small businesses an easier tax break, the general idea of the bill is to provide a 20% deduction to taxpayers with an income falling below $157,500 for single filers, or $315,000 for joint accounts.
However, rise above that threshold and things get tricky – a reduced deduction only applying to certain professions, before cutting off altogether at an income of $207,500 for singles, or $415,000 for married couples.
What are those certain professions? Currently, no one’s quite sure – a lax interpretation that could cost the U.S. Treasury over $415 billion in deductible tax dollars by 2025 unless more specification becomes available.
While the letter of the bill disqualifies industries like law, health, financial, brokerage, athletics, and consulting, the finer details of which job falls into which category is not specified, causing many businesses to find themselves entrapped in a massive grey area. For instance, questions like if veterinarian services count as “health care”, or if a life coach can be grouped under “consulting” same as a consultant for a hedge-fund – thereby making both ineligible for the deduction – are surfacing.
Another problem that has tax officials scrambling, is what the law means when it disqualifies any business where the “principle asset” is the “reputation or skill of one or more employees or owners”. According to Matt Turkstra from the Associated General Contractors of America, “a lot of the big names in construction, it’s their name that is the company,” while the bill’s wording regarding reputation and skill is just “broad enough that it could be concerning if it was taken out of the context.”
The IRS, in an effort to dispel some of the confusion, has promised a full clarification by June, but many are worried that should the loose terminology continue, administrative havoc could ensue as the courts rule in one direction and the IRS another.
Either way, never before has the IRS faced the insurmountable task of having to judge each business in the nation individually – while in the meantime, all CPAs and business owners can do is hope they judge fairly.
(This post was based in part off of this article by Ben Steverman.)
