Question

James Jones is the owner of a small retail business operated as a sole proprietorship. During 2019, his business recorded the following items of income and expense:

Revenue from inventory sales$147,000

Cost of goods sold 33,500

Business license tax 2,400

Rent on retail space 42,000

Supplies 15,000

Wages paid to employees 22,000

Payroll taxes 1,700

Utilities 3,600

1. Compute taxable income attributable to the sole proprietorship by completing Schedule C to be included in James’s 2019 Form 1040.
2. Compute self-employment tax payable on the earnings of James’s sole proprietorship by completing a 2019 Schedule SE, Form 1040.
3. Assume that James's business is not a service business, and that it has $155,000 unadjusted basis in tangible depreciable property. Calculate James's 2019 QBI deduction, before any overall taxable income limitation.

I have 1 & 2 correct but can't figure out number 3

Answer 1

ANSWER

3)

Calculation of James 2019 QBI deduction:

QBI@20% of taxble income =$26,800 x 20% =$5,360

James 2019 QBI deduction is $5,360

TAXABLE INCOME=SALES-COGS-OPERATING EXPENSES

$147,000-$33,500-$86,700

=$26,800

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