Section 199A Pass-Through Deduction Exam

Question 1

Jennifer’s pass-through business has total qualified business income of $100,000 and combined REIT dividends/PTP income of $20,000. Since her taxable income of $150,000, including $10,000 of net capital gain is below the applicable threshold, what is her pass-through deduction?
(Search Chapter 1)
a. $20,000
b. $24,000
c. $28,000
d. $30,000

Answer 1

My answer: a. $24,000
Correct

Question 2

Which of the following taxpayers would not be eligible for the pass-through deduction available under section 199A of the Tax Cuts and Jobs Act of 2017?
(Search Chapter 1)
a. Sarah, who operates a clothing store as a sole proprietor
b. Bill, who operates a gun shop organized as an S corporation
c. Adrian, who operates a landscaping business as a C corporation
d. Shirley, whose limited liability company (LLC) provides stenographic services to the legal profession

Answer 2

My Answer:
c. Adrian, who operates a landscaping business as a C corporation
Correct

Question 3

The word “qualified” used with respect to Qualified Business Income refers to the items of income, gain, deduction and loss that have two characteristics: The gross income or gain is included, or the deduction or loss is allowed, in determining the taxpayer’s income for the year and:
(Search Chapter 1)
a. the items are effectively connected with the taxpayer’s trade or business conducted in the U.S.
b. the items were not previously disallowed
c. the items were the result of a capital transaction
d. interest has not been considered

Answer 3

My answer: a. The items are effectively connected with the taxpayer’s trade or business conducted in the U.S.
Correct

Question 4

. What would enable a pass-through business owner of an SSTB whose taxable income exceeds the applicable threshold to qualify for an exception to disqualification for the § 199A pass-through deduction?
(Search Chapter 2)
a. Having taxable income within the phase-in range
b. Aggregating the SSTB with a non-SSTB pass-through business
c. Paying W-2 wages
d. Holding qualified property for use in the business

Answer 4

My answer:
a. Having taxable income within the phase-in range
Correct

Question 5

What is the qualified business income component of Arthur’s non-SSTB pass-through business if Arthur’s taxable income is within the phase-in range and the business has QBI of $500,000, pays $150,000 of W-2 wages and holds qualified property with a UBIA of $300,000 for use in the business?
(Search Chapter 2)
a. $45,000
b. $75,000
c. $100,000
d. $107,500

Answer 5

My Answer:
b. $75,000
Correct

Question 6

Which of the following would not limit the § 199A pass-through deduction of a taxpayer whose taxable income exceeds the applicable threshold but who is otherwise eligible for the deduction?
(Search Chapter 2)
a. Whether the trade or business engaged in by the taxpayer is an SSTB
b. The amount of W-2 wages paid with respect to the trade or business
c. The UBIA of qualified property held for use in the trade or business
d. The taxpayer’s claiming the deduction in prior years

Answer 6

My Answer:
d. The taxpayer’s claiming the deduction in prior years
Correct

Question 7

Bill and Edna are married and file a joint tax return in 2024. What is their applicable taxable income threshold for the § 199A pass-through deduction?
(Search Chapter 2)
a. $191,950
b. $141,950
c. $383,900
d. $483,900

Answer 7

My Answer:
c. $383,900
Correct

Question 8

Phil, a married taxpayer filing jointly, owns a non-SSTB pass-through business, and his applicable percentage is 30%. His 2024 taxable income is $453,900. What is his pass-through deduction if he has no REIT dividends or PTP income, his business has $500,000 of qualified business income, it paid $100,000 in wages and held no qualified property?
(Search Chapter 3)
a. $30,000
b. $65,000
c. $86,840
d. $100,000

Answer 8

My answer:
b. $65,000
Correct

Question 9

Bob owns a pass-through business and files his federal income tax return as married filing jointly. If Bob and Carol’s taxable income in 2024 is $403,900 and the applicable threshold is $383,900, what is his applicable percentage for calculating the pass-through deduction?
(Search Chapter 3)
a. 20%
b. 40%
c. 60%
d. 80%

Answer 9

My Answer:
d. 80%
Correct

Question 10

All of the following would be deemed to be operating a specified services trade or business (SSTB) EXCEPT:
(Search Chapter 4)
a. Bob, a stockbroker
b. Karen, an investment manager
c. Robert, an insurance broker
d. Karen, a retirement plan designer

Answer 10

My Answer:
c. Robert, an insurance broker
Correct

Question 11

Shirley is an unmarried pass-through business owner whose 2024 taxable income is $196,950 and her applicable threshold is $191,950. What is her reduction percentage for calculating the pass-through deduction?
(Search Chapter 3)
a. 5%
b. 10%
c. 90%
d. 95%

Answer 11

My Answer:
b. 10%
Correct

Question 12

. In which of the following situations is the general rule for calculating the qualified business income (QBI) component of the § 199A pass-through deduction modified?
(Search Chapter 3)
a. When the business owner’s taxable income is within the phase-in range
b. When the business owner’s taxable income exceeds the sum of the threshold amount and the phase-in range
c. When the QBI exceeds the applicable threshold
d. Never

Answer 12

My Answer:
a. When the business owner’s taxable income is within the phase-in range
Correct

Question 13

Which one of the following individuals is engaged in a trade or business that is considered an SSTB?
(Search Chapter 4)
a. Shirley, a film actor
b. Peter, a broadcaster at a local television station that disseminates video of performing arts
c. Angela, a costume designer for television and motion picture actors
d. Phil, a set designer for a regional theater organization

Answer 13

My Answer:
a. Shirley, a film actor
Correct

Question 14

Arthur is a tax preparer doing business as a sole proprietor. Under what circumstances could he receive a pass-through deduction that is not limited as a result of it being an SSTB?
(Search Chapter 4)
a. Only if Arthur were a CPA
b. Only if Arthur’s business is aggregated with another business that is not an SSTB
c. Only if Arthur’s taxable income does not exceed the applicable threshold
d. Only if Arthur’s business’ QBI does not exceed the applicable threshold

Answer 14

My Answer:
c. Only if Arthur’s taxable income does not exceed the applicable threshold
Correct

Question 15

A/n ____________, as the term is used with respect to the pass-through deduction, means any trade or business other than a specified service trade or business or the trade or business of performing services as an employee.
(Search Chapter 4)
a. SSTB
b. pass-through business
c. relevant pass-through entity
d. qualified trade or business

Answer 15

My Answer:
d. qualified trade or business
Correct