Calculate How Much Expiration Of The U.S. Pass-Through Deduction Will Cost Your Company

As readers are aware, the federal tax legislation approved by U.S. lawmakers in 2017 included a 20 percent deduction for pass-through businesses. This provision, which the Metals Service Center Institute (MSCI) supported, was intended to create relative parity between businesses that paid federal income taxes through the individual tax system and C-Corporations.

Unfortunately, unless federal lawmakers extend it, the deduction for pass-through organizations will expire at the end of 2025.

The U.S. Chamber of Commerce (USCC) and MSCI are working to make sure expiration does not happen, but individual business owners should weigh in with their lawmakers as well. To make it easier for them to discuss the impact expiration would have on them, the USCC has created the Qualified Business Income (QBI) Tax Increase Calculator, a tool that will help pass-through entities estimate the potential tax impact if the 20 percent deduction were to expire at the end of 2025.

The tool is available at this link.

In addition to pointing out impact on individual firms, MSCI encourages its member companies to let federal lawmakers know the 20 percent deduction is crucial for the more than 95 percent of U.S. businesses that are classified as pass-through entities. Indeed, without action, the top marginal tax rate for these businesses could increase from 29.6 percent to 39.6 percent in 2026. The Congressional Research Service also has released a study that explains that this deduction must be extended in order to maintain tax parity between corporate entities and S-Corporations.

Read that report at this link.