Question

Ellie (a single taxpayer) is the owner of ABC, LLC. The LLC (a sole proprietorship) reports QBI of $900,000 and is not a specified services business. ABC paid total W-2 wages of $300,000, and the total unadjusted basis of property held by ABC is $30,000. Ellie's taxable income before the QBI deduction is $740,000 (this is also her modified taxable income). What is Ellie's QBI deduction for 2019?a. $150,000.

b. $148,000.
c. $75,750.
d. $180,000.
e. None of these choices are correct.

Answer 1

B) $148000

Step-by-step explanation:

The QBI deduction was created by the 2017 Tax Cuts and Jobs Act, and it allows non corporate taxpayers to deduct

• 20% of their qualified business income
• 20% of qualified real estate investment trust dividends
• 20% of qualified publicly traded partnership income

The law sets a threshold and three separate groups for QBI deductions, and for 2019 group III's threshold was total taxable income greater than $210,700 for single taxpayers ($421,400 for joint filers).

Since Ellie's QBI exceeds the current threshold, then she must also calculate the W-2 Wages/Capital Investment Limit: the greater of

1. 50% of W-2 wages of the business
2. 25% of W-2 wages + 2.5% of the unadjusted basis of qualified property

Finally, Ellie must deduct the lesser of 20% QBI or wage and capital limitations:

• 20% of QBI = $740,000 x 20% = $148,000
• 50% of W-2 wages = $300,000 x 50% = $150,000