A simple view of the 20% pass through deduction

A business friend asked a simple question online: “What doe the pass-through deduction mean to me?” The collective response was so vague and convoluted that I felt sorry for her for asking.

After thinking about it, there are two things that are uncertain and one that is certain about the pass-through deduction that directly address her question:

  1. This new provision of the tax law, known as Section 199A, is complicated and there are still unknowns. The IRS has this to say so far and more information will follow.
  2. It remains to be seen how much of a tax savings benefit this is for small businesses. In some cases this new law appears to possibly be a trigger for higher income taxes rather than a tax reducing strategy.
  3. If the goal of the small business owner is actually to reduce taxes, then there are better ways to do it than relying on this pass-trough income deduction.


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