Spinning Off an Employee Leasing Arm
So the idea of real estate leasing raises the idea of a similar strategy with employees, with the establishment of a separate employee leasing entity. The employees would work for the new entity, which would contract with the professional business for the employees’ services. A commercially reasonable mark-up would result in profits accruing in the new entity, which arguably would qualify for the 20 percent deduction.
There are still questions as to whether employee leasing would work. It is probably a good argument that any separate employee leasing business is in the business of leasing employees, rather than in practice of, say, medicine or law. And the act does not provide any aggregation of commonly owned businesses that would collapse any separate leasing business into a generally excluded professional service business.
To be sure, the act expressly excludes from eligibility for the 20 percent deduction “the trade or business of performing services as an employee.” That exclusion appears aimed at any attempt by a taxpayer to convert his or her own W-2 income, through the establishment of a separate entity, into “business” income eligible for the 20 percent deduction. Though the wording suggests otherwise, the question remains whether it might strike more broadly at the performance by the entity of services by other employees.
Kenneth P. Brier is a partner of Brier & Ganz LLP, a law firm in Needham, Mass. His practice focuses on tax and estate planning and wealth preservation matters.