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ASA Encourages Senate Finance Committee Leadership to Make 199A Deduction Permanent

ASA, along with the Small Business Legislative Counsel (SBLC), sent a letter on Monday, October 4th conveying concerns regarding the Small Business Tax Fairness Act (S.2387) and other recent proposals to change the 199A deduction.  Per the letter, “we are aware of the intent to simplify the 199A deduction and eliminate the special rules for specified service businesses and we have serious concerns that the proposed phase out limits set forth in S. 2387 will exclude a significant number of small businesses from this important deduction.”

The 199A deduction was intended to create some parity between the tax rates for C corporations and the tax rates for pass-through entities.  Pass-through entities are already facing a significant disadvantage by the fact that, while the lower C corporation rates set in 2017 are permanent, the 199A deduction will sunset at the end of 2025.  To significantly lower the phase out, while also retaining the 2025 sunset will be extremely harmful for a wide swath of small businesses, many of which are still struggling to survive and recover from the pandemic.

Per their letter, “while we welcome the provisions of the proposed bill that would simplify the calculations of the 199A deduction and remove the distinction between different types of pass through entities, the tradeoff – namely the new complete elimination of the deduction for taxpayers with incomes over $500,000 (with a phase out starting at $400,000) – is far too high for the undersigned organizations to be able to support this legislation.  We have the same concern with the 199A proposal that was recently approved by the House Ways and Means Committee.”

Finally, ASA urges the committee to eliminate any income threshold amount which cuts off the deduction entirely and to add a provision to make 199A permanent.