Question

Maureen’s filing status is head of household. She owns and operates a hardware store, which has the following revenues and expenses for the current year.

                              Revenue                                                                                                               $     300,000

                              Expenses:

                                          Cost of goods sold                                                                              90,000

                                          Property taxes                                                                                     40,000          

                                          Repairs and maintenance                                                                   30,000

                                          Advertising and other costs                                                    20,000

                  During 2020, Maureen received corporate bond interest income of $9,650, qualified dividend income of $8,000, and has net capital gains of $7,000. She has no other items that would affect her adjusted gross income (AGI). Her itemized deductions total $17,000.

                  Required:

a.    Using good form, compute Maureen’s qualified business net income (QBI) generated from her hardware store.

b.    Using good form, compute Maureen’s Modified Taxable Income, and also her QBI deduction for 2020.

c.    Assume that Maureen received corporate bond interest income of $47,000, not $9,650; and that itemized deductions total 27,000, not $17,000. Using good form, compute Maureen’s Modified Taxable Income, and also her QBI deduction for 2020.

Answer 1

a) Qualified business net income (QBI) is the net amount of qualified items of income, gain, deduction and loss from any qualified trade or business, including income from partnerships, S corporations, sole proprietorships, and certain trusts. Interest income not properly allocable to a trade or business...

Here is the QBI Calculation of Hardware Store

Is the business a Sec 162 qualifying activity for the QBI Deduction	YES
Is the activity an SSTB (Specified Service Trade or Business)	YES
Business activity income before wages	300000
Taxpayer W2 wages from business activity	210000
Taxpayer guaranteed payments from business activity	9650
Unadjusted basis of property for QBI	7000
Taxpayer filing status	SINGLE
Taxpayer other taxable income	120000
Self-employed health insurance deduction	13000

b) Total Taxable Income = Gross Total Income - Deduction / Exemptions Allowed from Income

So Total Taxable Income= 120000-13000 = 107000

QBI deduction for 2020

50% of Company W2 wages 210000x50% =105,000

so her total QBI deduction amount is $105,000

c) Modified Taxable Income

$47000-$27000= $20000

QBI Deduction Amount is

$20000x50% = $10,000

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