Question

Jack and Jill, married couple, have taxable income of $395,000. Jack owns 100% of a S Corporation, which runs a successful burger restaurant. The S Corp has the following activity.  How much is the IRC 199A deduction:

• Ordinary Income of $500,000
• W-2 Wages paid of $120,000
• Original cost of qualified property of $400,000

Answer 1

Many individual, including owner of sole properetorship or through a partnership, S. corporations, trust or estate Mmay be eligible for a qualified business income deduction, also under the section 199A

Here, taxable income is $395,000 but qualified deduction under IRC199A is considered to be 20% of business income and also 20% for qualified real estate property. Wages paid is not allowed as deduction.

QBI: QUALIFIED BUSINESS INCOME

This contain 20% of QBI from a domestic business operated as a sole properetorship or through a partnership, s. corporations, trust or estate.

REIT (REAL ESTATE INVESTMENT TRUST)

This component also considered to be 20%

Deductions as per QBI (20%) THAT IS $500,000 X 20% = $100,000

Deduction a per REIT (20%) WHICH IS $400,000 X 20% = $80,000

Toatl deductions are $180,000 ($100,000 + $80,000)

Hence, for the net income we deduct total deduction from the taxable income

which is $215,000 ($395,000 - $180,000)

so, IRC 199A deductions is amount to $180,000