Question

Maureen’s filing status is head of household. She owns and operates a hardware store, which has the following revenues and expenses for the current year.

                              Revenue                                                                                                          $300,000

                              Expenses:

                                          Cost of goods sold 90,000

                                          Property taxes 40,000           

                                          Repairs and maintenance                                                                    30,000

                                          Advertising and other costs 20,000

During 2020, Maureen received corporate bond interest income of $9,650, qualified dividend income of $8,000, and has net capital gains of $7,000. She has no other items that would affect her adjusted gross income (AGI). Her itemized deductions total $17,000.

                  Required:

a.     Using good form, compute Maureen’s qualified business net income (QBI) generated from her hardware store.

b.    Using good form, compute Maureen’s Modified Taxable Income, and also her QBI deduction for 2020.

c.     Assume that Maureen received corporate bond interest income of $47,000, not $9,650; and that itemized deductions total 27,000, not $17,000. Using good form, compute Maureen’s Modified Taxable Income, and also her QBI deduction for 2020.

Answer 1

	MAUREEN QBI=
		Revenue		$3,00,000.00
	less:	Cost of goods sold	$90,000.00
		repair and maintenance	$30,000.00
		Advertising	$20,000.00
		property taxes	$40,000.00
a.	Qualified business	business income	$1,20,000.00
	Other income
		Bond interest	$9,650.00
		Dividend income	$8,000.00
		capital gain	$7,000.00
		AGI		$1,44,650.00
	LESS Deduction allowed $18650	$17,000.00
b.	Modified taxable income	$1,27,650.00
b.	QBI deduction=
	QBI deduction=20% of business income as it does not exceed taxable income of $163300			$24,000.00
c.
		Revenue		$3,00,000.00
	less:	Cost of goods sold	$90,000.00
		repair and maintenance	$30,000.00
		Advertising	$20,000.00
		property taxes	$40,000.00
	Qualified business	business income	$1,20,000.00
	Other income
		Bond interest	$47,000.00
		Dividend income	$8,000.00
		capital gain	$7,000.00
		AGI		$1,82,000.00
	LESS Deduction allowed $18650 not 27000	$18,650.00
	Modified taxable income	$1,63,350.00
QBI deduction=	lower of-20% of QBI or Greater of 50% of W-2 wages or the sum of 25%of w-2 wages plus 2.5% of UBIA of qualified property
	QBI deduction =	since w-2 wages and ubia property not given we take 20% of QBI as deduction =	$24,000.00