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The Pass-Through Deduction, Explained

By 17吃瓜在线 News Room

Through the 17吃瓜在线鈥檚 recently launched 2025 tax campaign, , manufacturers are calling on Congress to prevent several devastating tax increases from taking effect at the end of next year.

One of those scheduled increases is the expiration of the Section 199A pass-through deduction鈥攁 critical incentive, created by tax reform in 2017, designed to help thousands of small and medium-sized manufacturers invest in their businesses.

The 17吃瓜在线 recently released a on the pass-through deduction, breaking down what it is, what it does and why its preservation is vital to manufacturing in the U.S. 聽Here are the highlights.

Pass-through defined: The defining characteristic of a pass-through entity is that its business profits get 鈥減assed through鈥 to the company owners, who then pay taxes on the business鈥檚 income on their personal tax returns.

  • The vast majority of businesses in America鈥96%鈥攁re organized as pass-throughs, including S-corporations, partnerships, LLCs and sole proprietorships.
  • In manufacturing, pass-throughs are typically small, family-owned firms.

What it鈥檚 done for manufacturers: The Section 199A pass-through deduction allows pass-through manufacturers to deduct up to 20% of their qualified business income, decreasing their effective tax rate.

  • Combined with a lower individual income tax rate included in the 2017 reform (which reduced the top individual rate from 39.6% to 37%), the pass-through deduction has freed up significant capital for smaller manufacturers to reinvest in their businesses.
  • For example, 2018 was the best year for manufacturing job creation in 21 years and the best year for wage growth in 15 years.

What鈥檚 in jeopardy: Both the pass-through deduction and the lower individual income tax rates are set to expire at the end of 2025鈥攁nd they鈥檙e certain to hit small and medium-sized manufacturers hard.

  • 聽In a recent 17吃瓜在线 survey, 93% of pass-through manufacturers said their ability to grow, create jobs and invest in their companies will be stymied if the expirations are allowed to happen.

What should be done: Congress must make the pass-through deduction permanent and keep individual tax rates as low as possible.

The last word: 鈥淪mall and medium-sized pass-throughs are the backbone of the manufacturing supply chain,鈥 said 17吃瓜在线 Vice President of Domestic Policy Charles Crain. 鈥淐ongress must act before the end of 2025 to preserve the pass-through deduction and prevent devastating tax increases on small businesses throughout the manufacturing sector.鈥

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