Page 18 - Pakistan Link - February 1, 2019

P18 – PAKISTAN LINK – FEBRUARY 1, 2019 COMMUNITY
Pakistani-American Top Chef Contestant IRS Releases Rules on 20% Tax Break

Fatima Ali Loses Battle against Cancer for Pass-Through Business Owners

n By Laura Davison and Lynnley aren’t service professionals - such as
Browning lawyers or accountants; they must meet
B usiness owners - and their ac- the size of their deduction depends on
certain tests to take the full deduction -
countants - can rest a bit easier:
how much they pay in employee wages
The Internal Revenue Service
such as real estate.
has provided the long-anticipated final or how much they’ve invested in capital
word on how they can claim one of the For service professionals, the break
biggest perks in the 2017 Republican tax fully phases out if they earn more than
overhaul. $207,500 if they’re single or $415,000 if
The regulations detailing the new they’re married.
20% deduction for pass-through busi- No ‘crack and pack’
ness owners are of crucial importance to The rules make clear that compa-
the operators of such entities, who range nies can’t use a tax planning technique
from mom-and-pop convenience store called “crack and pack” to avoid limits
owners to private equity investors. on the new tax break. Professional ser-
The guidance, issued Friday despite vice providers had eyed the break to get
an ongoing partial government shut- around the income limits set for owners
down that has many IRS employees on of pass-through businesses.
furlough, can cut those business own- By using the strategy, they could
ers’ tax bills by as much as one-fifth. The have split their firms into different enti-
rules would govern what many say is one ties to lower their tax bills. For example,
of the most complex changes in the tax a law firm could have put all of its secre-
law President Trump championed. tarial staff into one entity and its lawyers
Fatima Ali had appeared on The Ellen DeGeneres Show in November. Fatima found her passion for food at an early
age growing up in Pakistan. At 18, she moved to the United States, where she attended the Culinary Institute of America. After The IRS made a series of changes to into another to get the full deduction on
graduating in 2011, she settled in New York City. Her resilience was tested two years ago when she was first diagnosed with cancer make it simpler for businesses to deter- the income tied to the administrative
mine whether they can get the tax break, work. That’s not allowed.
akistani-American chef Fatima Ali, known for and Lexington Avenue, in the middle of lunch rush,” she a senior Treasury official said on a call But companies with some income
her 2017 appearance on popular US television said. “We had to remake everything, with all the cooks with reporters. that qualifies and some that doesn’t can
Pseries Top Chef, passed away on Friday after los- missing. There were plenty of days like that. But you Veterinarians, for example, don’t still delineate those different activities,
ing a prolonged battle with cancer, her family con- know what? It was amazing. Managing to get through qualify for the deduction, but rental real such as through separate accounting
firmed. a day like that — and not only living to tell about it, but estate owners who spend at least 250 books, to get the deduction on the eligi-
Fatima had appeared on season 15 of the reality doing it again and again — I think it really makes you hours a year involved with the business ble income. For example, banking activi-
competition show as a contestant and was diagnosed understand what a human is capable of. We’re so resil- can get the deduction, according to the ties qualify for the deduction but wealth
with a rare form of bone cancer — Ewing’s Sarcoma — ient. If I had to do it all again, I wouldn’t change any- IRS guidance. management advising doesn’t, so a bank
right after. Chemotherapy appeared to benefit her ini- thing.” The rules make clear that income with some investment advising can sepa-
tially but cancer returned in September last year with Her resilience was tested two years ago when she from originating and selling mortgages rate the bookkeeping for those two units
doctors telling her it has metastasized. was first diagnosed with cancer. is eligible for the deduction, said Alan and still get the deduction on the qualify-
The 29-year-old chef, who was voted ‘fan favorite’ “I’d had this weird ache in my shoulder for the past Keller, first vice president of legisla- ing income.
on Top Chef, had in October 2018 penned an op-ed for couple of months that I’d been ignoring. You know, pop- tive policy at Independent Community Simple record-keeping
Bon Appetit, in which she shared that she has a year to ping a couple of Advils, going to sleep,” she wrote. “But Bankers of America, a trade and lobby- The deduction is limited for em-
live and intends to use it to make amends with the peo- one day, in the middle of lunch, my shoulder swelled up ing group. “That is favorable,” he said. ployers who pay low wages or hire few
ple in her life and to sample the finest food all over the and the pain was mounting literally by the minute. I had Filing season awaits workers. But the rules make it easier for
world. to go to the emergency room.” Taxpayers had been worried that related pass-through businesses to maxi-
In November, she had appeared on The Ellen DeGe- Ali remained hospitalized for three weeks. because of the partial shutdown of the mize their deduction by allowing compa-
neres Show to talk about how she was dealing with her “Honestly, until your first chemo cycle, I don’t think federal government they wouldn’t see nies to combine at the entity level or at
terminal cancer diagnosis. it really hits you. Then your hair starts falling out, and final rules before the Jan. 28 start of tax- the owner level. For example, two related
Fatima had then said her plan was to travel the finally you’re like, ‘This is actually happening. This is the filing season, and that confusing parts of businesses - one with a lot of employees
world to dine at the best restaurants. Her friends from rest of my life,’” she said. “I did eight rounds of chemo. the original provision could leave them but little profit, and another with a lot of
Top Chef had started a GoFundMe page to help her fulfil It was horrible, but at the end, my scans were all clear. exposed to penalties plus interest on im- profit but few wages - could aggregate
her wishes. I thought I’d beaten it. Then it came back. Worse than properly reported income. their payroll and income to get a bigger
On January 11, she had shared an update about her before. It was metastatic. It had spread to my lungs. The On Friday, the IRS also released a tax break.
health in what would be her last Instagram post. doctors told me I had a year to live.” proposal clarifying that shareholders of The rules retain a provision meant
When stressing about the unpleasant things — like mutual funds with real estate investment to simplify record-keeping if companies
Fatima Ali Wrote a Moving Essay her newly dyed hair falling out — she thought, “‘You trust investments can get the deduction. have only a small amount of income
before Her Death know what? Stop feeling sorry for yourself.’” She added, That change will affect about 15 million from ineligible activities, such as health
or law. If less than 10% of the income
“Even now, it could be so much worse than it is. I‘m still investors, according to a trade group rep-
very lucky to be able to do a lot of the things that I love.” resenting REITs. The IRS is still consid- is from ineligible sources, the company
n By Taryn Ryde Ali continued: “I decided not to spend whatever ering whether publicly traded partner- can still get the full deduction on all its
time I had left (whether it’s a year, a month, another 10 ship investments held through a mutual profits.
Prior to her death, Fatima Ali, a fan-favorite contes- years — you don’t know until you’re gone) lamenting all fund will qualify for the deduction. ‘Anomalous results’
tant on Season 15 of Top Chef, penned an inspiring essay the things that weren’t right. Instead, I’d make the most The proposed regulations also pro- Despite Treasury rules making it
for Bon Appétit magazine. Ali died Friday from cancer of it. I’m using cancer as the excuse I needed to actu- vide guidance for taxpayers who hold more clear how the law is implemented,
at age 29. ally go and get things done, and the more people I share interests in regulated investment com- the deduction isn’t available evenly, even
In 2017, Ali was diagnosed with Ewing’s sarcoma, a those thoughts with, the more I hold myself to them. If I panies, charitable remainder trusts and within industries, said Mike Greenwald,
rare form of cancer that affects bone and soft tissue. Af- write this intention down, if I have it printed somewhere split-interest trusts, the IRS said in a a partner at accounting firm Friedman
ter undergoing chemotherapy and surgery, she learned like I do here, I have to hold myself responsible, because statement. LLP. A longtime building owner may not
in September the cancer was back and terminal. In Oc- I have people counting on me. The agency also put in a test for be able to get the tax break, while newer
tober, the chef wrote for the magazine about how she “What is my intention? To live my life,” she said. rental real estate owners to know whether buyers might be able to get the deduction
planned to spend her final months, so in honor of her “To fulfill all those genuine dreams I have.” they can get the tax break: The answer is because they have invested more capital
memory, Bon Appétit has published an expanded ver- That meant spending time with loved ones and eat- yes if the property owners - or someone in the building, he said.
sion of her moving piece. ing at all the best restaurants as possible. they hire, such as a contractor - spend Donald Susswein, a pass-through
Ali found her passion for food at an early age grow- “My brother and I were talking the other day, and at least 250 hours a year on the business tax specialist who’s a principal in the
ing up in Pakistan. At 18, she moved to the United States, he made an interesting point. He was like, ‘As chefs, and keep records of their activities. Washington National Tax unit of RSM
where she attended the Culinary Institute of America. you guys deal with death every day.’ And he’s right,” she Small businesses US LLP, said the final rules allow taxpay-
After graduating in 2011, she settled in New York City, noted. “When you’re a chef, you understand the circle The pass-through deduction was ers to choose whether to use prior pro-
which worried her mother at first. of life. We’re butchering rabbits, whole hogs and baby included in the overhaul to give a tax posed regulations or the final regulations
“Watching me evolve gave my mom comfort and lambs; we’re filleting fish and cleaning shrimp. All these break to businesses whose owners pay when preparing their returns.
helped her understand that this was absolutely my call- things have died for us. I suppose you have to see it as the taxes on their personal tax returns - Ordinarily, final rules supersede
ing,” Ali remembered. “So she finally let go and said, the natural progress of life. Perhaps I’ve had to face it a partnerships, limited liability companies earlier rules, but this time the Treasury
‘Look, just promise me that you’ll do your absolute best. little bit sooner than expected, but it’s not an unfamiliar and S corporations. Trump and Repub- Department made an exception because
And I’ll be happy with that.’ And I said, ‘OK. That’s a feeling. lican leaders have said that middle-class many taxpayers had already put their ac-
promise.’” “There are days that I’m exceptionally afraid. There Americans and small businesses would countants to work for the filing season.
That’s exactly what she did, working seven-day are days I sit alone and cry, because I don’t want to do be the biggest beneficiaries under the “It’s unusual,” he said.
weeks and 14-hour days for nine months at her first job it in front of my family,” Ali said. “And there are other $1.5-trillion tax cut. One thing the final rules didn’t
at an Indian-Latin restaurant, where she was both a floor days that we all sit down and cry together, because it is All taxpayers who earn less than clarify, Susswein said, concerns taxpay-
manager and the sous chef. Ali recalled the often less- such a scary thing. But at the same time, you can’t let $157,500, or $315,000 for a married ers with multiple trades and businesses
than-glamorous parts of her early jobs in NYC. that fear cripple you. It’s harder being miserable than it couple, can deduct 20% of the income held within the same entity.
“One time several cooks called out [sick] and then is to be happy.” they receive via pass-through businesses For example, he said it’s not clear
the person who was transporting the catering trays A version of this essay will run in Bon Appétit‘s from their overall taxable income. If tax- how much of a deduction would be avail
dropped them all onto the pedestrian walk at 45th Street March print edition. payers earn above those amounts and IRS, P11
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