Question

1. Tammy has $200,000 of QBI from her neighborhood clothing store (a sole proprietorship). Tammy’s proprietorship paid $30,000 in W-2 wages and has $20,000 of qualified property. Tammy’and her spouse file a joint return and their Modified Taxable Income is $250,000. What is their QBI deduction for 2018?

	a.	$0
	b.	$40,000
	c.	$54,000
	d.	$50,000

2. During the year, Walt (self-employed) travels from Seattle to Tokyo (Japan) on business. His time was spent as follows: 2 days travel (one day each way), 2 days business, and 2 days personal. His expenses for the trip were as follows:

Air fare	$3,000
Lodging for 2 business days	2,000
Meals for 2 business days	1,000

Presuming no reimbursement, Walt’s deductible expenses are:

	a.	$5,500
	b.	$2,500
	c.	$4,500
	d.	$3,000

Answer 1

1. The answer is (b) $ 40,000.

For calculation of QBI Deduction, let's calculate Taxable Income first.

Taxable Income of Tammy and his spouse

= Qualified Business Income (QBI) + Tammy’s spouse wages+ Interest Income

=$200,000+$50,000+ $20,000

=$270,000

Modified taxable income is $270,000

Tammy and his wife, MFJ (Married Filing Jointly) and their Taxable Income is $270,000 which is below of threshold amounts ($315,000 for a married couple filing a joint return) under QBI deduction.

W-2 Wages and Investment limit is not applying here, therefore we are not considering W-2 wages paid and payment for Qualified Property by Tammy.

The QBI deduction will be lower of the following two;

a) 20% of Qualified Business Income (QBI) = 20 % of $200,000

                                                                        = $40,000

b)20% of Modified taxable income = 20 % of $270,000

                                                          = $54,000

Since 20% of Modified taxable income ($54,000) is less than 20% of QBI ($40,000).

Therefore, Qualified Business Income (QBI) Deduction for 2018 is $40,000.

2. The answer is (a) $ 5,500

The reimbursement for the following expenses is allowed:

· Air Fare - $ 3000 (Based on 7-days-or-less exception concept, the full airfare ($3,000) is allowed)

· Lodging for 2 Business days - $ 2000

· Meals for 2 Business days –( $ 1000*50%) = $ 500 (Since only 50% of meals expenses is allowed)