Question

In: Accounting

Joanne is married filing a joint return. Joanne owns a CPA firm and accounting is a...

Joanne is married filing a joint return. Joanne owns a CPA firm and accounting is a specified service. The firm has with QBI of 200,000. W-2 wages of the business was $150,000 and the total basis of property held in the business was $30,000. Her taxable income before her QBI deduction was $240,000 (which was also her modified taxable income). What is Ashley’s QBI deduction? Assume that Ashley’s spouse earned $300,000 raising their taxable income and MTI to $540,000. What would Ashley’s qualified business deduction be now?

Expert Solution

You must calculate your limitation if:

You have ownership interest in a qualified trade or business

AND

Your taxable income is more than $315,000 as a married filing jointly taxpayer or more than $157,500 as a single taxpayer

If your taxable income is less than these amounts, you don’t have to calculate the limitation. You can just take the straight 20% deduction.

Your QBI is limited to whichever of these options is the least:

20% of your QBI

OR

50% of the company’s W-2 wages OR the sum of 25% of the W-2 wages plus 2.5% of the unadjusted basis of all qualified property. You can choose whichever of these two wage tests gives you a greater deduction.

In this case, Joanne is married. Her filing status is married filing jointly. She owns a CPA firm and accounting is a specified business that generates $200,000 of QBI.

Her taxable income is $3,00,000. The business paid $ 1,50,000 in wages and has $30,000 in qualified property.

her taxable income was less than $315,000, her QBI deduction could have been $20,000 (20% x $100,000

However ,if the taxable income more than USD 3,15,000 , She has to calculate her limitation. She performs both wage tests to find the greatest deduction.

Test 1: 50% of the company’s W-2 wages

50% x $150,000 = $75,000

Test 2: 25% of the W-2 wages plus 2.5% of the unadjusted basis of all qualified property

(25% x $150,000) + (2.5% x $30,000) = $38,250

Mary chooses the greater deduction, so her total QBI deduction amount is $75,000.

Therefore Ashley's qualified business deduction is USD 20,000.

ekkarill92 answered 2 years ago

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