Question

Jansen, a single taxpayer, owns and operates a restaurant (as a sole proprietorship). The business is not a specified services business. In 2020, the business pays $125,000 in W-2 wages, has $187,500 of qualified property, and $437,700 in net income (all of which is qualified business income). Jansen has no other items of income or loss and will take the standard deduction. What is Jansen’s qualified business income deduction?

Answer 1

Particulars	Amount	Amount	Amount
(1) First limit:
Qualified business income		$      437,700
X applicable percent		20%
QBI limit		$        87,540	$        87,540
(2) Overall limit:
Modified taxable income		$      425,500
X applicable percent		20%
Modified taxable income limit		$        85,100	$        85,100
(3) W-2 wages/ investment limit:
Amount is higher of:
(a) W-2 wages		$      125,000
X applicable percent		50%
W-2 wages limit		$        62,500
(b) Capital investment limit:
Unadjusted basis of assets	$      187,500
X applicable percent	2.50%
Result A	$          4,688	$          4,688
W-2 wages	$      125,000
X applicable percent	25%
Result B	$        31,250	$        31,250
Result A plus Result B		$        35,938
(3) Higher of (a) and (b)			$        62,500
QBI Deduction Lesser of (1), (2), and (3)			$        62,500

Answer is:

62,500