R1 module 6

Question 1

Qualified Business Income

Answer 1

-does not include wages earned as employee or guaranteed payments to partners
-ordinary business income less business deductions
-EI by sole proprietors, LLPs, or partnerships
-dividends, interest, LT and ST capital gains and losses not included
-QBI reduced by any adjustments taken to arrive at AGI related to business
-includes deductible portion of SE tax, deductions for qualified contributions to SE retirement plans and SE health insurance deductions

Question 2

Qualified property

Answer 2

any tangible, depreciable property held by a business at year end and used at any point in year in production of QBI

Question 3

Qualified Trade or Business (QTB)

Answer 3

any business other than specified service trade or business (SSTB)

Question 4

Specified Service Trade or Business (SSTB)

Answer 4

-involves direct services in health, law, accounting, actuarial service, performing arts, consulting, athletics, brokerage, dealing in securities etc.
-trade in which principal asset is reputation or skill of one or more of its employees or owners
-engineering and architectural services excluded as SSTB

Question 5

QBI deduction calculation

Answer 5

QBI * 20%

Question 6

Section 199A

Answer 6

-enacted IRC 199A by Tax Job and Cuts Act 2017
-provides QBI deduction for eligible flow-through entities
-available to all taxpayers other than C corporations
-includes individuals, trusts, and estates
-deduction taken below line OR from adjusted gross income

Question 7

Limitations on QBI deduction

Answer 7

-deduction limited to taxable income and if business meets QTB or SSTB characteristics
-SSTBs only eligible for deduction if taxable income before QBI deduction is below certain level

Question 8

Taxable income limitations for QBI

Answer 8

-Single and all other ($182,100-232,100)
-MFJ ($364,200-464,200)

Question 9

W-2 wage and property limitation

Answer 9

-QBI deduction limited to greater of:
1) 50% of W2 wages for business OR
2) 25% W2 wages for business + 2.5% of unadjusted basis after acquisition of all qualified property
-limitation does NOT apply to real estate investment trust or publicly traded partnership income

Question 10

Overall taxable income limitation to QBI deduction

Answer 10

-after calculation of QBI deduction, overall limitation based on taxable income > net capital gain
-net capital gain includes excess of net LTCG over net STCL and qualified dividend income
-total Section 199A deduction is lesser of:
1) combined QBI deductions for all qualifying businesses OR
2) 20% of taxable income > net capital gain

Question 11

Three categories of taxpayers

Answer 11

1) (single and HH) at or below $182,100 or at or below MFJ $364,200
2) (single and HH) above $232,100 or MFJ $464,200
3) (single or HH) between $182,100 and $232,100 or MFJ between $364,200 and $464,200

Question 12

Category 1 calculation

Answer 12

1) if QTB -> full 20% QBI deduction
2) if SSTB -> full 20% QBI deduction

Question 13

Category 2 calculation

Answer 13

1) if QTB -> Full W2 wage and property limitation applies
2) if SSTB -> No QBI deduction allowed