Question

Elizabeth operates an accounting firm as a sole proprietorship. She is single, the accounting business has net income of $120,000 and she has taxable income of $130,000. Which of the following is true regarding her Qualified Business Income (QBI) deduction?

a)The QBI deduction is a deduction for adjusted gross income
b)The QBI deduction is an itemized deduction
c)She is not allowed a QBI deduction because she operates a specified service business.
d)NONE

Answer 1

The correct answer is NONE, as Elizabeth can claim a Qualified Business Income deduction for her accounting firm, which is 20% of her qualified business income.

Step-by-step explanation:

The correct answer regarding Elizabeth's Qualified Business Income (QBI) deduction is: NONE of the options provided. Since the taxable income of Elizabeth is $130,000, and the business has a net income of $120,000, Elizabeth can claim a QBI deduction. The QBI deduction is neither an adjustment for gross income nor an itemized deduction; it is a deduction from her taxable income, and according to the 2019 IRS guidelines, specified service businesses can claim the QBI deduction if their taxable income is below $164,900 for single filers (or $329,800 for married filing jointly). So, Elizabeth, being eligible, can utilize the QBI deduction for her accounting firm even though it is a service business. This deduction is equal to 20% of qualified business income, subject to limitations based on taxable income, W-2 wages, and the unadjusted basis immediately after acquisition of qualified property. However, detailing the limitations and actual calculation of the QBI deduction requires further information and computation.