Question

Felipe, a single taxpayer, is a technology consultant, who operates as a sole proprietorship. Felipe’s net business income is $600,000 (net of the associated for AGI self-employment tax deduction), he pays wages of $100,000 to his employees, and he has $200,000 of qualified property (unadjusted basis). Felipe’s taxable income before the deduction for qualified business income is $500,000. Assume he has no capital gains or qualified dividends.

Calculate Felipe’s deduction for qualified business income.

Answer 1

Particulars	Amount	Amount	Amount
(1) First limit:
Qualified business income		$      600,000
X applicable percent		20%
QBI limit		$      120,000	$      120,000
(2) Overall limit:
Modified taxable income		$      500,000
X applicable percent		20%
Modified taxable income limit		$      100,000	$      100,000
(3) W-2 wages/ investment limit:
Amount is higher of:
(a) W-2 wages		$      100,000
X applicable percent		50%
W-2 wages limit		$        50,000
(b) Capital investment limit:
Unadjusted basis of assets	$      200,000
X applicable percent	2.50%
Result A	$          5,000	$          5,000
W-2 wages	$      100,000
X applicable percent	25%
Result B	$        25,000	$        25,000
Result A plus Result B		$        30,000
(3) Higher of (a) and (b)			$        50,000
QBI Deduction Lesser of (1), (2), and (3)			$        50,000

Deductio is:

50,000

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