Question

With regard to the limitations of the QBI deduction, which of the following statements is not true?

1)	There are two potential limitations on the QBI deduction once a taxpayer's taxable income reaches certain levels.

2)	There is no limitation on the QBI deduction besides the 20% rule.

3)	The W-2 Wages/Capital Investment Limit can limit the QBI deduction to the greater of 50% of QBT W-2 wages or 25% of QT W-2 wages plus 2.5% of the acquisition basis of tangible depreciable property used in the QTB and not fully depreciated at year end.

4)	All of the above statements are correct.

5)

The QBI deduction is not allowed to certain service industries. Which of the following statements does not reflect a tax feature of a traditional IRA? 1) A taxpayer is NOT allowed an above-the-line deduction in the year a contribution is made. 2) Income earned in the traditional IRA is not taxed in the year it is earned and held in the IRA. 3) All of the above statements are true with regard to a traditional IRA. 4) Income earned in the traditional IRA is taxed when the taxpayer receives a distribution. 5) A taxpayer is allowed an above-the-line deduction in the year a contribution is made.

Answer 1

Q1.With regard to the limitations of the QBI deduction, which of the following statements is not true?

Explanation:

1)There are two potential limitations on the QBI deduction once a taxpayer's taxable income reaches certain levels-True. Technically , once a taxpayer taxable income reaches the threshold he/she needs to only check for two conditions. a) the QBI deduction cannot be more than 20% of “modified” taxable income.b)"The amount of the deduction is limited to the greater of 50% of the owner’s allocated share of W-2 wages, or 25% of W-2 wages plus 2.5% of the owner’s allocated share of qualified property used in the business."

2)There is no limitation on the QBI deduction besides the 20% rule- False

The rule as to QBI deduction for qualified business having crossed the threshold income is - a) the QBI deduction cannot be more than 20% of “modified” taxable income.b)"The amount of the deduction is limited to the greater of 50% of the owner’s allocated share of W-2 wages, or 25% of W-2 wages plus 2.5% of the owner’s allocated share of qualified property used in the business."

3)The W-2 Wages/Capital Investment Limit can limit the QBI deduction to the greater of 50% of QBT W-2 wages or 25% of QT W-2 wages plus 2.5% of the acquisition basis of tangible depreciable property used in the QTB and not fully depreciated at year end.- True

The actual W-2 Wages/Capital Investment limit that can limit the QBI deduction are-

• 50% of W-2 employee wages , or
• 25% of W-2 wages PLUS 2.5% of the acquisition cost of depreciable business property used in QTB.

4)All of the above statements are correct.- False.

All of the statements are not correct, only point 3 and 5 is correct.

5)The QBI deduction is not allowed to certain service industries.-True

Business houses who are providing" specified services " for example accounting, investment management, consulting, law etc. are not allowed to avail the QBI deduction even if their income is crossing the Threshold Limit.

Q2.Which of the following statements does not reflect a tax feature of a traditional IRA?

1)A taxpayer is NOT allowed an above-the-line deduction in the year a contribution is made-False .

IRS has categorized IRA as an above-the-line deduction item, which means we acn claim IRA dedcution irrespective of the fact whether we claim the standard deductions.

2)Income earned in the traditional IRA is not taxed in the year it is earned and held in the IRA.-false

Money invested in traditional IRAs and Income therein are generally tax free, however if it crosses the threshold and in not excluded from tax then it is taxed in the same financial year in which the income the earned.

3)All of the above statements are true with regard to a traditional IRA.-False

4)Income earned in the traditional IRA is taxed when the taxpayer receives a distribution. false

Interest income earned in traditional IRAs are taxed when they are withdrawn, distribution is not necessary.

5)A taxpayer is allowed an above-the-line deduction in the year a contribution is made-True.

IRS has categorized IRA as an above-the-line deduction item, which means we acn claim IRA dedcution irrespective of the fact whether we claim the standard deductions.