Tax Notes Talk Top Tax Cases of 2025, Part 2: What Are Deductions?
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Jan 30, 2026 Damien Martin, EY tax partner who analyzes major tax litigation, and Tony Nitti, EY tax partner and federal tax commentator, break down three pivotal 2025 cases about what counts as a deduction. They tackle whether nondeductible wages count for the 199A wage limit. They examine forgiveness versus worthlessness for bad debt claims. They dissect trade-or-business, capitalizing costs, and theft-loss timing issues.
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199A Wage Limit Requires Deductible W-2s
- Section 199A was created to preserve pass-through tax advantages after TCJA by allowing a 20% deduction of qualified business income.
- Savage shows the wage cap counts only W-2 wages that are deductible when computing the 199A limit.
Check Wage Deductibility Before Claiming 199A
- Do review payroll and credit interactions before relying on W-2 wage amounts for 199A claims.
- Avoid including wages made non-deductible by credits (e.g., ERC) in the 199A wage limit without checking tax treatment.
Forgiving Related-Party Loans Backfires
- Kelly used a disregarded entity to make large loans to related S corporations and later forgave them to try to create tax benefits.
- The Ninth Circuit rejected his nonbusiness bad debt deduction because forgiveness alone doesn't prove worthlessness.