Recently released IRS form 8995 instructions indicate that taxpayers filing business returns must reduce qualified business income by charitable deductions. A reduction in qualified business income reduces the potential qualified business income deduction. Although this provision is not in the Section 199A regulations, the reduction in qualified business income can be avoided by making a distribution from the business to the business owners and then the business owners can make the charitable contributions personally instead of the business.
It is possible that the guidance in the Form 8995 instructions may be corrected, particularly if it is challenged as not being in accordance with the regulations. However, to insure it will not reduce the qualified business income deduction, consideration should be given as to how contributions are made. Since making distributions can result in basis reduction and/or gain in some circumstances, you should consult your JMF tax adviser before making large distributions in lieu of contributing to the charity directly through the business.