Pretty sure you could add a few zeros behind your estimate of number of people concerned about this.
I’ll take one of zeros…but my zeros would start with zero and end with zero.
Newsflash: A sole-proprietor’s business does not pay compensation to the sole-proprietor, reasonable or otherwise.
However, the law we now have was not written this way.
Sure it was. If you have a regarded entity, that pays wages/guaranteed payments to the owner, all the law is saying is that you can’t also count that compensation as QBI. The business of a sole-proprietor doesn’t “pay compensation” to the sole proprietor.
This was published recently, in response to the new tax bill / 199A?
Well, seeing that it specifically references, “qualified business income,” I’d wager a “yes.”
Do we have to carve out a portion of the partner's allocable ordinary income as compensation?
Probably so, unless you want the IRS to do it for you. But that puts you in a pickle, doesn’t it? Here you are, overtly asserting on a 1040, by manually adjusting down QBI, that you didn’t take reasonable comp…
If so, then it seems reasonable the same would be required of a Sch C profit.
Not in my view. RIA has it 100% right.
I agree that the way the law is written it does not exclude sole proprietorships. (If someone can show me otherwise I would be indebted.)
The law I’ve read talks about “paying compensation.” If you don’t understand how that concept fits in to general tax principles, as they relate to the taxation of a sole proprietor, then your issue isn’t with the new law, it’s with the underlying concept.
Anyone else think there will be a rash of court cases?
Not me.
Passing this bill at the end of the year with effective dates Jan 1 then going on vacation to celebrate is like someone leaving a flaming bag of feces on your porch.
Only if you don’t understand how sole-proprietorships operate from a tax standpoint. I for one am not of the opinion that a sole-proprietorship business “pays compensation” to the sole-proprietor. I had this opinion both before and after this new law was passed.