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Ben and Molly are married and will file jointly. Ben earns $300,000 from his single member...

Ben and Molly are married and will file jointly. Ben earns $300,000 from his single member LLC (a law firm). He reports his business as a sole proprietorship. Wages paid by the law firm amount to $40,000; the law firm owns no significant property. Molly is employed as a tax manager by a local CPA firm. Their modified taxable income is $375,000 (this is also their taxable income before the deduction for qualified business income). What is their tentative QBI based on the W–2 Wages/Capital Investment Limit? $_______? Determine their allowable QBI deduction. $________?

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Answers are highlighted in yellow: What is their tentative QBI based on the W-2 Wages/Capital Investment Limit? Since, there taxable income is more than 315000, it will be subject to W-2 wages/capital Solution: 1) investment limit will be applied: Step-01 Phased out percentage: (100%)-(375000-315000)/(415000315000) Step.02 Tentable QBI based on W-2 Wages/Capital Investment limit: 40% $ 8,000 Greater of below: 50% of W-2 wages (40000*50%) *40% $ 8,000 or 25% of w-2 wages, plus 2.5% of unadjusted basis of qualified property $ 4,000 2) Allowable QBI deduction: General QBI deduction (300000*20%)40% Less: Reduction of W-2 wages/Capital limit (24000-8000)*60% Allowable QBI deduction 24000 9600 14400

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