From the National Society of Accountants:
Confused About the New Pass-Through Deduction? So Is Everyone Else
Tax professionals don’t know how many partnerships, limited liability companies, and S corporations will qualify for the lower taxes that Republicans intended for pass-through businesses in their new tax law.
Guidance about who does—and doesn’t—qualify for the law’s pass-through deduction is at the top of many wish lists for advice from the IRS. The law provides a 20 percent deduction for pass-through income, but excludes service business owners making more than $157,500 as individuals or $315,000 as joint filers.
What is a service business? The tax reform law defines a service business as an entity in the fields of health, law, consulting, athletics, financial services, or 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.
Tax practitioners say a definition relying on the reputation or skill of an employee is too broad and could apply to many businesses outside of those typically thought of as service businesses.