6) Shawn owns and manages his single-member LLC which provides a wide variety of accounting services...

6) Shawn owns and manages his single-member LLC which provides a wide variety of accounting services to his clients. He is married and will file a joint tax return with his spouse, Georgia. His LLC reports $250,000 of net income, W-2 wages of $120,000, and assets with an unadjusted basis of $75,000. Their taxable income before the QBI deduction is $215,000 (this is also their modified taxable income). Determine their QBI deduction under Section 199A for 2019.

Expert Solution

The QBI deduction is the way for the individual taxpayer for reducing their tax liability for the qualified business income that they generate from S corporations, sole proprietorships, and partnerships. The deduction for QBI is limited to the lesser of the:

1) 20% of the QBI

or

2) 50% of W-2 wages paid by the company for business or trade or it can be the total of 25% of W-2 wages plus 2.5% unadjusted basis of the total qualified property. The individual taxpayer can choose any of these wage tests which can provide a greater deduction.

Since, the taxable income of Shawn is $215,000, so it will neither subject to the W-2 wage limit nor required to phase out because if the taxable income is lower than $157,000 (single) or $315,000 (jointly filing by married), then the individual taxpayer doesn’t need to calculate the limitation.

Thus, the QBI deduction of Jennifer will be 20% of the taxable QBI.

QBI deduction = $215,000*20%

= $43,000

ekkarill92 answered 2 years ago

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