R1 Individuals- M6 - Section 199A Qualified Business Income Deduction

Question 1

Qualified Business Income Deduction
QBI Deduction

Answer 1

20% × QBIncome

The deduction is subject to limitations.

Question 2

What is the overall limitation to the qualified business income (QBI) deduction

Answer 2

Lesser of: the combined QBI deductions or 20 percent of the taxpayer’s taxable income in excess of net capital gain

Question 3

2 Types of Qualified Business

Answer 3

SSTB - Specified Service Trade or Business
1. Healthcare
2. Accounting
3. Law
4. Actuarial Science
5. Performing Arts
6. Consulting
7. Athletic
8. Financial Services including Brokerage etc

EXCEPTIONS:

Architectural and Engineering Services

Question 4

QBI Nuance

Answer 4

Ordinary Income minus Ordinary Expense and must be reduced by adjustments allowed - 1/2 Self employment tax, SEP IRA and SE Health Insurance

does not include the ff:
Guaranteed Payments
Wages
Dividends
Capital Gains and Losses (both LT and ST)

Question 4

Taxable Income levels Before QBI

Answer 4

Memorize this!

Single and all other $ 191,950- $241,950
MFJ $ 383,900- $ 483,900

Question 5

W-2 Wage and Property Limitation

THIS DOES NOT APPLY TO REIT and PTP (Publicly Traded Parnerhip)
Income

Answer 5

HIGHER between

50% of W-2 Wages for Business
OR
25% of W-2 Wages for Business + 2.5% of the UBIA (Unadjusted Basis Immediately After Acquisition ) of all QUALIFIED PROPERTY

Qualified Property - Tangible, depreciable property held by business at the end of the year and used at any point in the year in the production of QBI

Question 6

Overall Taxable Income Limitations

Answer 6

Once the tentative QBI Deduction is calculated for each Qualifying Business, overall tax limitation IN EXCESS OF NET CAPITAL gain must be considered

NET Capital Gain= Net LTCG - Net STCL + Qualified DIVIDEND income

LESSER between:

Combined QBI Deductions for all QUALIFYING Business

OR

20% X (Taxable Income before QBI Deduction - Net Capital Gain)

Question 7

Application of Taxable income levels and Wage and Property Levels

If at or below the taxable income levels before QBI:

Lesser or at 191,950 and 383,900

Answer 7

QTB= Full 20% QBI Deduction multiplied to QBI (note this is net of 1/2 SE Tax, SEP IRA and SE Health Insurance)

SSTB= Full 20% QBI Deduction multiplied to QBI (note this is net of 1/2 SE Tax, SEP IRA and SE Health Insurance)

Above amounts Compared to :

20% X (Taxable Income before QBI Deduction - Net Capital Gain)

Question 8

Application of Taxable income levels and Wage and Property Levels

Above the taxable income levels before QBI:

Above 241,950 and 483,900

Answer 8

For SSTB- NO DEDUCTION IS ALLOWED
For QTB, follow below rule:

1. LOWER between:

QBI Deduction= 20% of QBI

OR

Higher between:
50%of W-2 Wages
25% w-2 Wages + 2.5% of UBIA Qualified Property

2. Compare #1 amount to below, whichever is LOWER:

20% of (Taxable Income before QBI- Net Capital Gain)