Question

answer based on new tax bill 2018

- Under the actual cost method, which of the following expenses, if any, will not be allowed? a. Car registration fees. b. Auto insurance. c. Interest expense on a car loan (taxpayer is an employee). d. Dues to auto clubs. e. All of these. Ellie (a single taxpayer) is the owner of ABC, LLC. The LLC (a sole proprietorship) reports QBI of $900,000 and is not a specified services business. ABC paid total W-2 wages of $300,000, and the total unadjusted basis of property held by ABC is $30,000. Ellie's taxable income before the QBI deduction is $740,000 (this is also her modified taxable income). What is Ellie's QBI deduction for 2019? a. $75,750. b. $148,000 c. $150,000 d. $180,000

Answer 1

1. Option C

Interest expense on a car loan ( taxpayer is an employee )

2. Option B

$148,000

As Ellie's taxable income before the QBI deduction exceeds the $207,500 threshold, the W- 2 Wages/ Capital Investment Limit is considered.

Ellie's QBI is calculated as follows:

1. 20% of qualified business income ($900,000 * 20%) = $180,000
2. But not more than the greater of

• 50% of W - 2 wages ( $300,000 * 50%) = $150,000
• 25% of W - 2 wages ( $300,000 * 50%) = $75,000
• Plus :  2.5% of unadjusted basis of qualified property = $750 ($30,000 * 2.5%)

Total = $75,750

AND NO MORE THAN

3. 20% of modified taxable income ( $740,000 * 20% ) = $148,000