Question

Problem 15-33 (LO. 3, 4) Susan, a single taxpayer, owns and operates a bakery as a sole proprietorship. The business is not a specified services business. In 2019, the business pays $60,000 of W-2 wages and reports qualified business income of $200,000. Susan also has a part-time job earning wages of $11,000 and receives $3,200 of interest income. Assume the QB1 amount is net of the self-employment tax deduction What is Susan's tentative QBI based on the W-2 Wages/Capital Investment Limit? Determine Susan's allowable QBI deduction,

Answer 1

B 1 1) 2 $30,000 3 Applying two limitations, Greater of below. 4 i) 50% of W-2 wages 5 ii) 25% of W-2 wages+(25% of qualified property) 30000 15000

c 1 2) 2 $31,740 4 QBI deduction without any limit (20% of net income ) 40000 6 Applying two limitations, Greater of below. 7 8 50% of W-2 wages 30000 9 15000 10 25% of W-2 wages+(25% of qualified property) 11 12 Not more than 20% of taxable income 13 14 Excess of 20% of QBI deduction over wage limit 40400 10000 15 82.55% 16 Reduction ratio 17 18 Reduction in W-2 wages/capital limit 8260 19 20 Final QBI deduction: 21 General 20% QBI deduction amount 22 Reduction in W-2 wage/capital limit 23 Final QBI deduction 40000 8260 $31,740 24 25

Workings:

A B 1 1) 2 30000 3 Applying two limitations, Greater of below. 4 i) 50% of W-2 wages =60000*50% 5 ii) 25% of W-2 wages+(25% of qualified property) =(60000*25%)+(0*25%)

1 2) 2 31740 3 4 QBI deduction without any limit (20% of net income ) =200000*20% 6 Applying two limitations, Greater of below. 7 8 50% of W-2 wages =60000*50% 9 10 25% of W-2 wages+(25% of qualified property) =(60000*25%)+(0*25%) 11 =((200000+11000+3200)-(12200))*20% =(40000-30000) =(202000-160725)/(50000) 12 Not more than 20% of taxable income 13 14 Excess of 20% of QBI deduction over wage limit 15 16 Reduction ratio 17 18 Reduction in W-2 wages/capital limit 19 20 Final QBI deduction: 21 General 20% QBI deduction amount 22 Reduction in W-2 wage/capital limit 23 Final OBI deduction =(10000*82.6%) 40000 8260 =B21-B22 24 25