Devon Bishop, age 45, is single. He lives at 1507 Rose Lane, Albuquerque, NM 87131. His...

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Devon Bishop, age 45, is single. He lives at 1507 Rose Lane, Albuquerque, NM 87131. His...

Devon Bishop, age 45, is single. He lives at 1507 Rose Lane, Albuquerque, NM 87131. His Social Security number is 111-11-1117. Devon does not want $3 to go to the Presidential Election Campaign Fund.

Devon's wife, Ariane, passed away in 2014. Devon's son, Tom, who is age 18, resides with Devon. Tom's Social Security number is 123-45-6788.

Devon owns a sole proprietorship for which he uses the accrual method of accounting and maintains no inventory; the business operates as Devon's Copy Shop, 422 E. Main Street, Albuquerque, NM 87131, IRS business activity code: 453990. His revenues and expenses for 2018 are as follows:

Sales revenue	$740,000
Cost of goods sold (based on purchases for the year)	405,000
Salary expense	88,000
Rent expense	30,000
Utilities	8,000
Telephone	6,500
Advertising	4,000
Bad debts	5,000
Depreciation*	21,000
Health insurance**	26,000
Accounting and legal fees	7,000
Supplies	1,000

*New office equipment ($21,000); Devon chose to use the immediate expense election.

** $18,000 for employees and $8,000 for Devon.

Other income received by Devon includes the following:

Dividend income (qualified dividends):
Swan, Inc.	$10,000
Wren, Inc.	2,000
Interest income:
First National Bank	11,000
Second City Bank	2,500
County of Santa Fe, NM bonds	17,000

What is the QBI? How much QBI deduction is?

business accounting

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Answer 1

Answer #1

QBI (Qualified Business Income) is the net amount of qualified income, gain, deduction and losses from a qualified business.

Qualified Income & Gain = $740000 + $10000+$2000

= $752000

Deduction & losses = $405000+ $30000+$8000+$6500+$4000+$5000+$21000+$18000+$7000+$1000

= $591500

QBI = $752000-$591500

= $160500

QBI Deduction is equal to 20% of Devon QBI=160500*20%

= $32100

Note :- QBI does not inckude income not relatable to the business. Also it does not include wages or any guaranteed payments. Hence, salary has not been taken into account.

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Answer 2

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Note: This problem is for the 2018 tax year. Devon Bishop, age 45, is single. He lives at 1507 Rose Lane, Albuquerque, NM 87131. His Social Security number is 111-11-1112. Devon does not want $3 to...