QBI Deduction 199A Flashcards
Basic definition of Qualified Business Income and what entities earn it?
Ordinary business income minus ordinary business deductions earned from a sole proprietorship, S Corp, LLC, or partnership connected to a business conducted in the US.
Basic calculation for tentative QBI deduction?
20% x Qualified Business Income
What are the two relevant classifications of businesses for QBI purposes and what difference does it make?
(1) Specified Trade or Businesses are businesses involving direct services in the fields of health, law, accounting, actuarial sciences, performing arts, consulting, athletics, financial services, brokerage, securities trading, and any trade where the primary asset is the skill/reputation of its employees/owners.
(2) Qualified Trade or Business is any business besides an SSTB.
SSTB’s have more limitations on the amount of QBI deduction they can take.
What are the three primary limitations on the QBI deduction?
(1) Limitation based on Taxable Income before QBI deduction.
(2) Limitation based on whether business is QTB or SSTB.
(3) An overall limitation.
For the QBI limitation related to taxable income, how many categories of taxable income are there?
Three categories.
Lowest category is for income $191,950 and under
The middle category is for income between $191,950 and $241,950.
The highest category is for income above $241,950.
What limitations are imposed on entities in the lowest category of income for purposes of the QBI limitation and how are QTBs and SSTBs treated differently?
QTBs and SSTBs are not treated differently under this category. Only the overall limitation applies to this category.
How to calculate the overall limitation?
TI before QBI deduction
- Net capital gains
x 20%
= Overall QBI limitation
What limitations are imposed on entities in the highest category of income for purposes of the QBI limitation and how are QTBs and SSTBs treated differently?
SSTBs in this category receive no deduction at all.
QTBs face the overall limitation as well as the W-2 wage and property limitation.
What is the calculation of the W-2 wage and property limitation?
Limitation is the greater of:
(1) 50% x Taxpayer’s share of W-2 wages,
(2) (25% x Taxpayer’s share of W-2 wages) + (2.5% x UBIA of all qualified property)
What does UBIA stand for?
Unadjusted basis immediately after acquisition?
What is qualified property for purpose of the W-2 wage and property limitation?
Any tangible, depreciable property held by the business at the end of the year and is used at any point during the year in the production of QBI.
What are other important taxes besides income taxes?
(1) Self-employment tax,
(2) Additional Medicare Tax,
(3) Net investment income tax,
(4) Kiddie Tax
