Question

Roquan is an attorney and practices as a sole proprietor. This year, Roquan, who is single, had net business income of $90,000 from his law practice. Assume that Roquan pays $40,000 wages to his employees, he has $10,000 of property (unadjusted basis of equipment he purchased last year), has no capital gains or qualified dividends, and his taxable income before the deduction for qualified business income is $100,000. (Leave no answer blank. Enter zero if applicable.) Required: Calculate Roquan’s deduction for qualified business income. Assume the same facts as earlier, except Roquan’s taxable income before the deduction for qualified business income is $300,000.

a. Calculate Roquan’s deduction for qualified business income.

b. Assume the same facts as earlier, except Roquan’s taxable income before the deduction for qualified business income is $300,000.

Answer 1

Answer a:

The deduction is amount determined with respect to any qualified trade or business is the lesser of-

• 20% of qualified business income (QBI) or
• The greater of
  • 50% of W-2 wages with respect to the businesses or
  • 25% of the W-2 wages with respect to the businesses plus 2.5% of the unadjusted basis of all “qualified property.”
• 20% of taxable income of the business owner

However, the W-2 limitations do not apply if a taxpayer’s taxable income is less than $315,000 if married filing jointly or $157,500 for all other taxpayers.

Roquan is an Attorney and is single.

Roquan's taxable income is $100,000, he is eligible for QBI and as the taxable income is less than threshold of $157,500, the W-2 limitations do not apply

Hence, in case of Roquan, deduction will be lesser of:

• 20% of QBI or
• 20% of taxable income of the business owner

As his QBI is lesser at $90,000, deduction for QBI = 20% * $90,000 = $18,000

Answer b:

Roquan's taxable income = $300,000

As the income is greater than threshold of $207,500 for single and is from "Specified service businesses", he is not eligible for the 20% deduction