Question

BLANK is a member of BCC (an LLC taxed as a partnership). BLANK was allocated $50,000 of business income from BCC for the year. BLANK'S marginal income tax rate is 37 percent. The business allocation is subject to 2.9 percent of self-employment tax and 0.9 percent additional Medicare tax. (Round your intermediate calculations to the nearest whole dollar amount.)

a. What is the amount of tax BLANK will owe on the income allocation if the income is not qualified business income?

Tax owed if income is not QBI=

b. What is the amount of tax BLANK will owe on the income allocation if the income is qualified business income (QBI) and BLANK qualifies for the full QBI deduction?

tax owed if income is QBI=

Answer 1

a. $20,007

		Amount ($)	Description
1	Business Income allocation	50,000
2	QBI deduction	-	Income doesn't qualify
3	Deduction for 50% of SE Tax	669	(1)*0.9235*0.029*0.5
4	Net taxable business income	49,331	(1)-(3)
5	Income tax paid by owner	18,252	(4)*37%
6	Self Employment tax	1,339	(1)*0.9235*0.029
7	Additional medicare tax	416	(1)*0.9235*0.009
	Owner Level tax	20,007	(5)+(6)+(7)

92.35% is derived by the fact that self employed tax payers can deduct the employers portion of tax which is 7.65% (100-7.65 =92.35%)

b. $16,307:

		Amount ($)	Description
1	Business Income allocation	50,000
2	QBI deduction	10,000	(1) * 20%
3	Deduction for 50% of SE Tax	669	(1)*0.9235*0.029*0.5
4	Net taxable business income	39,331	(1)-(2)-(3)
5	Income tax paid by owner	14,552	(4)*37%
6	Self Employment tax	1,339	(1)*0.9235*0.029
7	Additional medicare tax	416	(1)*0.9235*0.009
	Owner Level tax	16,307	(5)+(6)+(7)