Under the proposed regulations under Section 199A of the Internal Revenue Code, recently published by Treasury and the IRS, insurance agents may not be considered a “specified service trade or business”. As a result, insurance agents may be eligible for the full 20% deduction available to pass-through entities.
While this may be good news for you, many of your clients may still be considered a “specified service trade or business” and may not be able to take advantage of the 20% deduction provided by section 199A. Under section 199A, a “specified service trade or business” is defined as:
any trade or business –
(A) which is described in section 1202(e)(3)(A) (applied without regard to the words “engineering, architecture,”) or which would be so described if the term “employees or owners” were substituted for “employees” therein, or
(B) which involves the performance of services that consist of investing and investment management, trading, or dealing in securities (as defined in section 475(c)(2)), partnership interests, or commodities (as defined in section 475(e)(2)).
Section 1202(e)(3)(A) includes any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services or brokerages. However, section 199A specifically excludes from the list engineering and architecture. Section 1202(e)(3)(A) also includes 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.
A client engaged in a business that is considered a “specified service trade or business” is not eligible for any deduction under section 199A, if his or her income from the business exceeds $207,500 for a single taxpayer or $415,000 for a married taxpayer filing a joint tax return. However, a single taxpayer with income less than $157,500, and a married taxpayer with income less than $315,000, can take the full deduction. In addition, a single taxpayer with income between $157,500 and $207,500, and a married taxpayer with income between $315,000 and $415,000, is eligible for a deduction, but the deduction will phase-out as income increases.
If you have a client with income in excess of the foregoing thresholds, a strategy to help your client become eligible for the section 199A deduction is the adoption of a qualified retirement plan. Contributions to a qualified retirement plan are generally deductible and could lower your client’s taxable income below the applicable thresholds for the section 199A deduction; thus making the plan more affordable and helping your client to prepare for a comfortable and financially secure retirement. RMC can design and administer a plan tailored to your client’s needs. Available plan designs range from a profit sharing/401(k) to traditional and fully-insured 412(e)(3) defined benefit plans.
To request a quote or discuss retirement plans, contact RMC Group today at 239.298.8210 or firstname.lastname@example.org.