Question

Rob Wriggle operates a small plumbing supplies business as a sole proprietor. In 2019, the plumbing business has gross business income of $421,000 and business expenses of $267,000, including wages paid of $58,000. The business sold some land that had been held for investment generating a long-term capital gain of $15,000. The business has $300,000 of qualified business property in 2019. Rob's wife, Marie, has 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 $321,400 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?

Answer 1

Solution taxable income before a compute deduction as Rob and Marie follows i particulars Amount: $ 250000 $154000 Marie wage income Business income (421000- 267000) long term capital gain (13000 +15000) Total income $ 28000 $us2000 Less - standard deduction & Quooo Taxable income before QBI deduction = $ 1080oo. b) compute Rob and masies & Bl as follows's particulars amount Gross business income Less's Business Expenses QBI $4a1ooo $267000 isy ooo Thus, Rob and masies & Bl is $ 154000.

Compute Roband morsie's GBI deduction as follower - 20% of QB1 deduction $ 207 * $ 154000 - $ 30800 OR 20% of defined taxable = 200% (408000-28000) z doy (380000) = $ 76000 which ever less, SBI deduction before phaseout is $ 30800 Net QB1 de duction. Allowable QB1 deduction -phaseout reduction = $30800-$1674 - $ 29126 Thus, Wet QBT deduction is $29126

Answer 2

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

$421,000-$267,000+$15,000+$250,000+$13,000-$24,400 = $407,600*

b. What is Rob and Marie’s QBI? Business capital gain is not part of QBI

$421,000-$267,000 = $ 154,000

c. What is Rob and Marie’s QBI deduction?

QBI with no limitation $154,000 x 20% = $30,800** QBI before phaseout

 

Robe and Marie’s taxable income exceeds by $86,200 the $321,400 threshold for taxpayers married filing jointly $407,600-$321,400 = $86,200,

calculate reduction ratio for MFJ = ($407,600* - $321,400) / $100,000 = 0.862 = 86.2%

 

Above the income threshold, the 20% QBI deduction is limited to the GREATER of:

1.     50% of the W-2 wages $58,000 x 50%= $29,000        OR

2.     The sum of the following:25% of the W-2 wages: $58,000 x 25%= 14,500    plus           2.5% of the unadjusted basis immediately after acquisition of the qualified property: $300,000 x 2.5% = 7,500. 

Then $14,500 +$7,500 = $22,000

The greater of the two is the wage limit $29,000 

($30,800**-$29,000 = $1,800***)

$1,800*** x Reduction Ratio 86.2% = $1,552

Net QBI deduction = QBI before phaseout – phaseout deduction

Net QBI deduction = $30,800**- $1,552 = $29,248 QBI deduction