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In: Accounting

ABC Company formed in 2020. ABC company files their tax return using the accrual basis of...

ABC Company formed in 2020. ABC company files their tax return using the accrual basis of accounting. ABC’s profit and loss showed the following:

Revenue - $1,000,000

Expenses:

Salaries - $700,000

Office Expense - $50,000

Supplies - $20,000

Postage - $10,000

Meals - $7,000

Entertainment - $1,000

Repairs - $2,000

Rent - $50,000

Political Contributions - $2,500

Calculate ABC company’s taxable income using the accounts above. Assuming ABC company operates a sole proprietorship, calculate the Qualified Business Income Deduction for 2020.

Expert Solution

Calculation of ABC company's Taxable Income:

Particulars	Amount in $
Revenue	$1000000
Less:
Salaries	$700000
Office Expense	$50000
supplies	$20000
Postage	$10000
Meals(50 % allowable)	$3500
Repairs	$2000
Rent	$50000

Taxable Income	$157500

Note : Meals Expenses is allowable to the extent of 50% by Internal Revenue Services(IRS) department for Tax purpose. Entertainment expenses of $1000 is not allowable by the IRS department for Tax purpose.

calculation of Qualified Business Income deduction for Year 2020:

As ABC company is soleproprietor concern and having a Taxable Income of $157500, The Qualified Business Income Deduction(QBID) is allowable to the extent of 20% of Qualified Business Income(QBI) .

Since, there is no deduction w.r.t capital gains,dividends, interest income,etc Taxable Income is deemed as Qualified Business Income(QBI)

Qualified Business Income(QBI) = $157500

Qualified Business Income Deduction(QBID) = $157500*20% = $31500

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