Rebecca and Brad are married and will file jointly. Rebecca earns $300,000 from her single-member LLC (a law firm). She reports her business as a sole proprietorship. Wages paid by the law firm amount to $40,000; the law firm has no significant property. Brad is employed as a tax manager by a local CPA firm. Their modified taxable income is $381,400 (this is also their taxable income before the deduction for qualified business income). Determine their QBI deduction for 2019.
What will be an ideal response?
Normally, Rebecca and Brad would be entitled to a QBI deduction of $60,000 ($300,000 x 20%). But since their taxable income exceeds the threshold for married taxpayers ($321,400), and Rebecca’s QBI is from a “specified services” business (a law firm), their QBI deduction is limited to $14,400, computed as follows:?
| (1) | Determine applicable percentage: | ||||
| Applicable percentage = 100% – $60,000 ($381,400 – $321,400) = 40% $100,000 | |||||
| (2) | Determine QBI deduction: | ||||
| 1. | 20% of qualified business income ($300,000 x 20%) | $60,000 | |||
| x Applicable percentage | x 40% | ||||
| $24,000 | |||||
| 2. | But no more than the greater of: | ||||
| 50% of W-2 wages ($40,000 x 50% x 40%), or | $ 8,000 | ||||
| 25% of W-2 wages ($40,000 x 25% x 40%) plus | $4,000 | ||||
| 2.5% of the unadjusted basis of qualified property ($0 x 2.5% x 40%) | -0- | $4,000 | |||
| (1) | Determine difference between the general 20% QBI deduction amount and the W-2 Wages/Capital amount. | |
| General 20% QBI deduction amount | $24,000 | |
| Less: The W-2 Wages/Capital Investment limit | ( 8,000) | |
| Excess | $16,000 | |
| (2) | Determine the Reduction Ratio: | |
| Reduction Ratio = $60,000 ($381,400 – $321,400) = 60% | ||
| $100,000 | ||
| (3) | Determine the reduction in the W-2 Wages/Capital Investment Limit: | |
| Excess ($16,000) x Reduction Ratio (60%) = $9,600 | ||
| (4) | Determine Final QBI Amount: | |
| General 20% QBI deduction amount | $24,000 | |
| Less: Reduction in the W-2 Wages/Capital limit | ( 9,600) | |
| Final QBI Amount | $14,400 |
You might also like to view...
When shopping with others, some people are more likely to choose risky alternatives than they would be if shopping alone. This behavior occurs due to social power of groups
Indicate whether the statement is true or false
Because Oracle does not raise an error if a(n) UPDATE does not affect any rows, you must include specific instructions in the block to raise an error if no rows are updated.
Answer the following statement true (T) or false (F)
Reduction of fixed cost may be achieved by aggregating lots across multiple products, customers, or suppliers
Indicate whether the statement is true or false.
In the context of malware protection, the program code that causes the unwanted actions is called the ________.
A. payload B. bundler C. kernel D. bot herder E. key escrow