Question

1.

The following three single taxpayers have income and deductions as follows:

                                          Ahmed                  Baker                    Chin

Gross Income                 $ 80,000               $ 80,000                 $ 80,000
Deductions For AGI 14,000   7,000                             0
Itemized Deductions                   0 7,000 14,000

Qualified Business

Income Deduction 0 2,000    10,000

What is the Ahmed taxable income?

2.What is the Baker taxable income?

3.What is the Chin taxable income?

Answer 1

Answer:

Considering the above facts for Tax Year 2018:

Lowest Taxable Income is for Ahmad , followed by Chin and Baker. See the explanation below.

Ahmad:

Gross Income = 80,000 ; AGI Deductions = 14,000 ; since no itemized deductions are provided, we will consider standard deduction of 12,000.

Taxable Income =80,000 - 14,000 - 12,000

Taxable Income =54,000

Chin:

Gross Income = 80,000 ; Itemized deductions = 14,000 (this is greater than standard deduction of 12,000. so we will go with it)

Taxable Income before QBI deduction =80,000 - 14,000 =66,000

QBI deduction = smaller of 20% of Taxable income before QBI deduction or actual QBI

=66,000*20% = 13,200

QBI deduction per the facts = 10,000

QBI Deduction = smaller of 13,200 or 10,000 = 10,000

Thus, Taxable Income = 66,000 - 10,000 = 56,000

Taxable Income = 56,000

Baker:

Gross Income = 80,000 ; AGI Deductions = 7,000 ; Itemized deductions = 12,000 ( since the standard deduction of 12,000. is greater than the provided deduction of 7,000)

Taxable Income before QBI deduction =80,000 - 7,000 - 12,000 = 61,000

QBI deduction = smaller of 20% of Taxable income before QBI deduction or actual QBI

= 61,000*20% = 12,200

QBI deduction per the facts = 2,000

QBI Deduction = smaller of 12,200 or 2,000 = 2,000

Thus, Taxable Income = 61,000 - 2,000 =59,000

Taxable Income =59,000