Major General Al-Tayeb | Digital Vision | Getty Images
Tax breaks worth trillions of dollars It is scheduled to end after 2025 Without an extension from Congress — including a significant discount for millions of freelancers and business owners.
Issued by the former president Donald Trumpthe Tax Cuts and Jobs Act For the year 2017 was created Qualified business income deductionor QBI, up to 20% of qualifying revenue, subject to limitations.
The temporary discount applies to the so-called Transient businesswhich reports income at the individual level, such as sole proprietors, partnerships, and S corporations, along with some trusts and estates.
“The hope is that this will be extended because it would be very disruptive to a lot of business owners” if the tax break is allowed to expire, said Dan Ryan, a tax partner at the law firm Sullivan & Wooster.
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Lawmakers added the temporary QBI deduction to the Tax Cuts and Jobs Act to create tax rates for pass-through businesses that are similar to corporate tax rates.
But while the QBI deduction would expire after 2025, the legislation permanently lowered corporate taxes by lowering the top federal rate from 35% to 21%.
For tax year 2021, the most recent data available, there were approx 25.9 million claims from QBIup from 18.7 million in 2018, the first year the tax break became available, according to the IRS.
“It’s very important for a lot of private companies,” said Howard Glickman, a senior fellow at the Brookings Urban Tax Policy Center.
Extension would be ‘fairly expensive’
Heading into the 2025 tax cliff, there were “very strong feelings” about whether the QBI deduction would be extended, according to Garrett Watson, senior policy analyst and director of modeling at the Tax Foundation.
Business advocates say discounting promotes growth and have pushed for it Make the tax break permanent. At the same time, some policy experts and lawmakers point to the high cost and complexity of the deduction.
The QBI deduction is “fairly expensive” with an estimated 10-year cost More than $700 billionThat could be a challenge amid the debate over the federal budget deficit,” Watson said.
Other critics say QBI is an adversary It primarily benefits the wealthy Because those with higher incomes are more likely to have transitory income. However, millions of middle-income taxpayers also claim the deduction, according to IRS data.
Some Democrats are eager to see the tax break end, “but that applies directly to the president’s tax pledge,” Watson said.
White House National Economic Advisor Lael Brainard reaffirmed the president in June Joe BidenPromise to Extending the tax breaks granted by Trump Only for those earning less than $400,000.
