Under the Trump Tax Law, certain service businesses were excluded from the new 20% Pass-Through Deduction.

More specifically, businesses that make more than a certain amount of income, and were in the following fields: health, law, accounting, actuarial science, brokerage, financial services, performing arts, athletics, consultants, AND any other trade or business where the principal asset is the “reputation or skill” of its owners.

This last category created a ton of confusion and questions…and it also seemed to disqualify a lot of small businesses. For example, an electrician or plumber relies on their reputation or skill…so they would be excluded, right?

Well, the Treasury recently came out with Proposed Regulations clarifying this “reputation or skill” definition.

This clarification states that service business owners excluded within this last category only include businesses engaged in the trade or business of:

1. Receiving income for endorsing products or services
2. Licensing or receiving income for use of their image, likeness, name, signature, voice, trademark or other symbols associated with an individual’s identity, or
3. Receiving appearance fees

So, basically, since this definition was substantially limited, many, many more businesses may now qualify for the 20% pass-through deduction.

Stay tuned…we may see more changes down the road…