Independent insurance agents qualify for a new tax break called the Pass-Through Deduction.
Good news for independent insurance agents as a recent Treasury Department ruling will allow insurance agents to qualify for the new Pass-Through Deduction tax break. The Pass-Through Deduction allows sole proprietorships, partnerships, trusts and S-corporations to deduct up to 20% of their qualified business income. The deduction debuts this tax season under Section 199A and remains until 2025.
Only a “qualified trade or business” can apply for the deduction. This excludes “a trade or business of performing services as an employee” and “a specified trade or business”.
There was debate as to whether insurance agents fit under the classification of “specified service trade or business” which would disqualify them from the deduction. Early drafts of the bill excluded insurance and real estate agents from the deduction, which was later revised.
The deduction applies to “qualified business income”. Qualified business income equals domestic income from a trade or business, but not wages, capital gains, interest or dividends.
The President gave corporations a big tax break as a part of his recent tax bill, lowering the top rate from 35% to 21%. The Pass-Through Deduction is intended to be a break for small businesses. Anywhere from 17 to 40 million business owners may take advantage of the deduction.