WSWA Warns on Proposed Limitation of 199A Tax Deduction

President Biden’s proposed $3.5 trillion tax package to pay for his “human capital” infrastructure plan is raising concerns by members of Wine & Spirits Wholesalers of America which warns limiting or repealing the Sec. 199A deduction “would significantly hamper their ability to hire new employees, invest in new technology or infrastructure such as trucks and warehouse equipment.”

“The proposed limitation also further penalizes businesses whose ownership structure includes a trust, significantly hampering the ability of multi-generational family-owned businesses to make investments needed to continue growing and creating jobs in all fifty states and every congressional district across the country,” Michelle Korsmo, WSWA president/ceo, adds.

Currently, 199A allows a deduction of 20% of Qualified Business Income from a domestic business operated as a sole proprietorship or through a partnership, S Corporation, or similar business structure. This deduction allows family-owned wholesalers to reinvest in their business, employees, warehouse technology, delivery truck fleets, and other critical company infrastructure.

Family-owned businesses, like America’s wine and spirits wholesalers, often structure their business entities as pass-throughs, LLCs, or partnerships rather than corporations because it is well suited for multi-generational family business. The use of trusts in the ownership structure allows family-owned businesses with multiple family owners to reinvest in the business in an orderly fashion.*

Depending on the taxpayer’s taxable income, the QBI component is subject to multiple limitations including the type of trade or business, the amount of W-2 wages paid by the qualified trade or business, and the unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business. “WSWA supports these current guardrails that ensure that only real businesses with real employees are eligible for the 199A deduction,” it says.

The unintended consequence of this policy change is that family-owned businesses will not have funds to reinvest and grow the business in future years, because the revenue will be taxed more heavily, WSWA says.

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