Question

Roquan, a single taxpayer, is an attorney and practices as a sole proprietor. This year, Roquan had net business income of $90,000 from his law practice. Assume that Roquan pays $40,000 wages to his employees, he has $10,000 of property (unadjusted basis of equipment he purchased last year), and has no capital gains or qualified dividends. His taxable income before the deduction for qualified business income is $100,000. (Leave no answer blank. Enter zero if applicable.) Required: a. Calculate Roquan's deduction for qualified business income. b. Assume the same facts provided above, except Roquan's taxable income before the deduction for qualified business income is $300,000. Part a Part b Deduction for qualified business income |

Answer 1

Answer a:

the deduction is amount determined with respect to any qualified trade or business is the lesser of-

> 20% of qualified business income (QBI) or

> The greater of

>50% of W-2 wages with respect to the businesses plus 2.5% of the unadjusted basis of all "qualified property"

> 20% of taxable income of the business owner

however ,the W-2 limitations do not apply if a taxpayer's taxable income is less than $315000 if married filling jointly or $157,500 for all other taxpayers

Roquan is an attorney and is single

Roquan's taxable income is $100,000 he is eligible for QBI and as the taxable income is less than threshold of $157,500 for all other taxpayers

Hence ,in case of roquan ,deduction will be lesser of

>20% of QBI or

>20% of taxable income if the business owner

As his QBI is lesser at $90,000 ,deduction for QBI=20% *$90,000=$18,000

a	Deduction for qualified business income	$18,000

Answer b:

Roquan's taxable income =$300,000

as the income is greater than threshold of $207,500 for single and is from "specified services business",he is not eligible for the 20% deduction

b	deduction for qualified business income	$0