Jose is married filing a joint return. In 2019, he earned $160,000 of profit from his sole proprietorship, which operates a service business. The business paid no W-2 wages in 2019 and owns no tangible business property.a. Compute Jose's allowable QBI deduction if his joint return reflects taxable income of $300,000 before the deduction. b. Compute Jose's allowable QBI deduction if his joint return reflects taxable income of $340,000 before the deduction.
What will be an ideal response?
a. QBI deduction is $32,000 ($160,000 x 20%). Because his taxable income is below the 2019 threshold of $321,400, he is exempt from the wage limitation and the exclusion of services businesses.
b. His taxable income exceeds the 2019 $321,400 threshold by $18,600. His QBI deduction is reduced by 18.6%, to $26,048 ($32,000 - 18.6% x $32,000).
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