The IRS issued final regulations on January 17 that allow staffing firms to take advantage of the new tax deduction for “pass-through” businesses, provided for in the Tax Cuts and Jobs Act of 2017. Many of the staffing firms we encounter are pass-through businesses and should substantially benefit from the deduction.
This deduction applies to businesses such as sole proprietorships, partnerships, trusts, and S corporations in which the owners are taxed on their business income at the individual 1040 level. Those individuals can take a deduction, up to 20 percent, for their Qualified Business Income (QBI) subject to certain limitations (e.g., if the W-2 wages with respect to the trade or business are below a specified amount or their fixed assets are below a certain specified amount). QBI is the net amount of qualified items of income, gain, deduction and loss from any qualified US trade or business, except for certain “specified services trades or businesses” (“excepted SSTBs”) in fields such as health, law, accounting, and consulting. Also excepted is any business whose principal asset is the reputation or skill of one or more of its employees or owners. Individual taxpayers who make less than $157,500 ($315,000 for married couples filing jointly) are not subject to these exceptions.
If a staffing firm separately engages in the business of advising clients or consulting clients in managing their workforce, consulting on business issues, or consulting on such matters as compensation and human resource issues, your entity may be engaged in the excepted specified services trades or businesses. To the extent that a staffing firm does provide these, or any consulting services, you still may qualify for the deduction if the consulting services are de minimis. Treasury has stated that de minimis revenue shall be less than 10 percent for businesses with gross receipts of $25 million or less; less than 5 percent if gross receipts exceed $25 million. Staffing firms should consult with their tax advisers on the requirements for maintaining appropriate decisions as it relates to the consulting revenue in their business.
For more information on how to reduce your Federal Taxes, contact us at WOTC.com for a free consultation.