Question

Sam and Jane Hill, both age 35, are married filing a joint return. Jane is employed full time and Sam is a part owner in several local businesses. They have contacted you inquiring about the Section 199A qualified business income (QBI) deduction. They have provided information for their Year 1 business income in the exhibit above. Sam and Jane do not elect to aggregate any of the qualifying businesses. Their only other income in Year 1 is Jane's salary of $250,000. They will not be itemizing deductions in Year 1 and will use the married filing jointly (MFJ) standard deduction of $24,400. For purposes of this simulation, ignore any deduction for one-half of self-employment tax.

	QBI DEDUCTION FOR EACH BUSINESS	TAXABLE INCOME
TAXALBE INCOME BEFORE QBI DEDUCTION
QBI DEDUCTION FOR EACH BUSINESS
APLHA PARTNERS
BRAVO COMPANY INC
CHARLIE COMPANY LLC
TOTAL SECTION 199A QBI DEDUCTION
TAXABLE INCOME AFTER QBI DEDUCTION

Alpha Partners	Bravo Co. Inc.	Charlie Co. LLC	Total
Ownership	Sam —25%	Sam —25%	Sam —25%
	General Partner	Shareholder	Member-Manager
Entity form	Partnership	S Corp.	Limited Liability Co.
Type of business	Bookstore	Gift Shop	Coffee Shop
Share of ordinary business income (loss)	($20,000)	$50,000	$150,000	$180,000
Salary or guaranteed payment	–	$15,000	$30,000	$45,000
Withdrawals/distributions	$5,000	$10,000	–	$15,000
Other Information Provided by Business:
Total W-2 wages paid by the business	$40,000	$30,000	$220,000	$290,000
Total unadjusted basis immediately after acquisition (UBIA) of qualified property

199A QBI Taxable Income Limitations

Filing Status	Taxable Income
Single and all other	$160,700–210,700
Married filing jointly	$321,400–$421,400

Using the exhibits, calculate the amount of Sam and Jane's qualified business income (QBI) deduction for each business and the total Section 199A QBI deduction and enter the amounts in the table below. Use whole numbers, and if the amount of the deduction is zero, enter a zero (0).

Answer 1

199A = 20% of Qualified Business Income

Salary or Guaranteed Payment is not qualified for 199A.

Sam total income = 180,000 + 45,000 = 225,000 + 250,000(Jane) = 475,000 Which is more than 421,400. for MFJ

Charlie Co.LLC deduction will be lessor of below:

i. 20% of QIB (150,000) = 30,000

II. 50% of Wages paid to Employee (220,000) = 110,000

So 30,000 will be 199A deduction for Charlie Co.LLC

Bravo Co

i. 20% of QIB (50,000) = 10,000

II. 50% of Wages paid to Employee (30,000) = 15,000

So 10,000 will be 199A deduction for Charlie Co.LLC.

Alpha Parnters amount will be Zero.

Taxable income after QIB

Total Income - 475,000 - 10,000 - 30,000 = 435,000

TAXALBE INCOME BEFORE QBI DEDUCTION		475,000
QBI DEDUCTION FOR EACH BUSINESS
APLHA PARTNERS	NIL
BRAVO COMPANY INC	10,000
CHARLIE COMPANY LLC	30,000
TOTAL SECTION 199A QBI DEDUCTION	40,000	40,000
TAXABLE INCOME AFTER QBI DEDUCTION		435,000