New guidance on the 199A - Spidell

New guidance on the 199A

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Message Board New guidance on the 199A

This topic contains 4 replies, has 2 voices, and was last updated by Cristina Park 1 week, 5 days ago.

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  • #184124
    Cristina Park
    Participant

    Spidell just highlighted in the October Federal Newsletter the IRC 199A guidance in the instructions for the new Form 8995 regarding the adjustment for charitable contributions.  According the new instructions, taxpayers must reduce their qualified business income by the amount of any charitable contributions made by the trade or business.  This would affect not only partners and shareholders but sole proprietors also.

    I am wondering if there is any additional information anyone has come across regarding the sole proprietor.  If the business makes a donation from their business checking account and charges it to draw would this still apply.  The owner would not be attempting to take a business deduction for the donation so I feel unclear about whether the adjustment would be necessary.

    Also Spidell points out that most, if not all, software would not have made this adjustment for 2018 returns.  Do we need to file amended returns?

    I have some clients who practice business “tithing” meaning they give a regular donation from their business account, based on profits, to churches and other religious organizations.  This could be a large adjustment for those clients so I am hoping to get some type of guidance ASAP.

    TIA to anyone who might have more information.

  • #184140
    Lynn Freer
    Participant

    A self employed individual has never been allowed to deduct the charitable contribution from the Schedule C so in reality, this doesn’t change anything. Publication 535 business expenses, states Charitable contributions. Cash payments to an organization, charitable or otherwise, may be deductible as business expenses if the pay-ments aren’t charitable contributions or gifts and are directly related to your business. If the payments are charitable contributions or gifts, you can’t deduct them as business expenses

    So unless there is a business purpose you never got a Schedule C deduction and if there is a business purpose, it seems that it would not be included in ABI

  • #184165
    Cristina Park
    Participant

    Thanks, Lynn.  I was not meaning to suggest these would ever be business expenses.  I was referring to the comment in the article by Mike Giagrande in the October Federal Tax Newsletter just released.  His caution in the article was about Schedule C taxpayers.  It warns that the taxpayer must make a manual adjustment to reduce qualified business income by the amount of the contribution made the trade or business.

    I may be confused but it seems to me that this does change the calculation for the QBID.  It would go along with the other QBI adjustments such as Self-Employment Tax and retirement contributions.  Am I wrong about this?

     

  • #184169
    Lynn Freer
    Participant

    What it seems to say is that if the contribution was deducted on Schedule C, you would have to manually remove it. I doubt this happens much but if the contribution is going to Schedule A, you don’t need to do anything. (To be honest, it seems to me the IRS should have left out the Schedule C part altogether. So sounds like you don’t need to do anything. Good luck finishing up!

  • #184178
    Cristina Park
    Participant

    Ok, that makes more sense than what I first thought.  Thanks!