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21 August, 19:35

Rob's wife, Marie, has a wage income of $250,000. They jointly sold stocks in 2019 and generated a long-term capital gain of $13,000. Rob and Marie have no dependents and in 2019, they take the standard deduction of $24,400. The income threshold for QBI limitations starts at $315,000 for married filing jointly taxpayers.

a. What is Rob and Marie's taxable income before the QBI deduction?

b. What is Rob and Marie's QBI?

What is Rob and Marie's QBI deduction?

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  1. 21 August, 19:48
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    According to IR Many individuals, including owners of businesses operated through sole proprietorships, partnerships, S corporations, trusts and estates may be eligible for a qualified business income deduction, also called the section 199A deduction. Some trusts and estates may also claim the deduction directly.

    The deduction allows them to deduct up to 20 percent of their qualified business income (QBI), plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. Income earned by a C corporation or by providing services as an employee isn't eligible for the deduction.

    1. QBI component. This component of the deduction equals 20 percent of QBI from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust or estate. Depending on the taxpayer's taxable income, the QBI Component is subject to limitations including:

    a. The type of trade or business,

    b. The amount of W-2 wages paid by the qualified trade or business, and

    c. The unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business.

    These limitations do not apply to taxpayers with taxable income at or below a certain threshold. For 2018, the threshold amount is $315,000 for a married couple filing a joint return, and $157,500 for all other taxpayers.

    STEPS ARE:

    1. Original QBID = 154K*20% = 30,800

    2. Wage/Cap. Investment limitation: a) wage limitation = 58K*50% = 29,000

    b) wage/capital limit. = wage (58K*25%) + capital (300K*2.5%) = 14,500+7,500=22K

    We take the larger of them = > 29K

    3) Since original QBID is greater than wage limitation, we must use reduction ratio. In this case:

    408K (taxable income) - 315K (threshold) / 100,000 = 0.93

    4) Now we subtract the wage limitation from original QBID (30,800 - 29,000) * 0.93 = 1,674.

    5) Finally, subtract that from original QBID 30,800-1,674=29,126.

    29,126 their final QBID
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