Question

Qualified Business Income (QBI) Deduction (LO 4.10)

Rob operates a small plumbing supplies business as a sole proprietor. In 2018, 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 2018. Rob's wife, Marie, has wage income of $250,000. They jointly sold stocks in 2018 and generated a long-term capital gain of $13,000. Rob and Marie have no dependents and in 2018, they take the standard deduction of $24,000.

The income threshold for QBI limitations starts at $315,000 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?
$154,000

What is Rob and Marie's QBI deduction?
$

** Please give explanation and not just the answer. Thank you! **

Answer 1

a. Compute Rob and Marie taxable income before deduction as follows: Statement showing taxable inome Particulars Amount Marie wage income $250,000 Business income ($421,000 - $ 267,000) $154,000 Long term capital gain (13000 + 15000) $28,000 Total income $432,000 Less: Standard deduction $24,000 Taxable income before QBI deduction $408,000 Thus, Rob and Marie taxable income before QBI deduction is $ 408,000. b. Compute Rob and Marie's QBI as follows: Amount $421,000 Statement showing QBI Particulars Gross business income Less: Business expenses QBI $267.000 $154.000 Thus, Rob and Marie's QBI is $ 154,000.

Compute Rob and Marie's QBI deduction as follows: • 20% of QBI deduction i.e. $ 30.800 (20% * $ 154,000) OR • 20% of defined taxable income i.e. $ 76,000 (20% x ($ 408,000 - $ 28,000) Whichever less, QBI deduction before phaseout is $ 30,800. Net QB I deduction = Allowable QBI deduction - phaseout reduction = $ 30,800 - $ 1,674 = $ 29,126 Thus, net QBI deduction is $ 29,126.