Question

Tammy has $200,000 of QBI from her neighborhood clothing store (a sole proprietorship). Her proprietorship paid $30,000 in W-2 wages and has $20,000 of qualified property. Tammy's spouse earned $50,000 of wages as an employee, they earned $20,000 of interest income during the year, and they will be filing jointly. What is their QBI deduction for 2019?

Answer 1

Qualified Business Income (QBI) Deduction for 2018 is $40,000.

Step-by-step explanation:

Given details;

Tammy and his wife, MFJ (Married Filing Jointly)

Qualified Business Income (QBI) = $200,000

W-2 wages paid by Tammy = $30,000

Payment for Qualified Property = $20,000

Tammy’s spouse wages = $50,000

Interest Income = $20,000

For Calculating QBI Deduction, we have to find the Taxable Income.

Taxable Income of Tammy and his spouse

= Qualified Business Income (QBI) + Tammy’s spouse wages+ Interest Income

=$200,000+$50,000+ $20,000

=$270,000

Modified taxable income is $270,000

Note: this is also their taxable income before the QBI deduction, because there is no allowable Deductions are given.

Tammy and his wife, MFJ (Married Filing Jointly) and their Taxable Income is $270,000 which is below of threshold amounts ($315,000 for a married couple filing a joint return) under QBI deduction.

Also, W-2 Wages and Investment limit is not applying here, therefore we are not considering W-2 wages paid and payment for Qualified Property by Tammy.

the QBI deduction will be the lesser of the following;

a) 20% of Qualified Business Income (QBI) = 20 % of $200,000

= $40,000

b)20% of Modified taxable income = 20 % of $270,000

= $54,000

Since 20% of Modified taxable income ($54,000) is less than 20% of QBI ($40,000).

Therefore, Qualified Business Income (QBI) Deduction for 2018 is $40,000.