Question

How is the qualified business income (qbi) deduction treated on a partnership return?

a. each partner's share of each qbi item is reported on a statement accompanying their schedule k-1 (form 1065).
b. the partners use this information to calculate the deduction on their own returns. the partnership's qbi items are used to calculate a deduction on page 1 of the partnership's form 1065.
c. each partner's share of ordinary income on schedule k-1 (form 1065), box 1, will be reduced by 20%.
d. the qbi deduction will require an adjustment to the tax-basis capital accounts on schedule m-2 of form 1065.

Answer 1

The QBI deduction for partners is reported on a statement with the Schedule K-1 (Form 1065), and each partner calculates their own deduction on their personal tax returns.

Step-by-step explanation:

In a partnership, the Qualified Business Income (QBI) deduction is handled by reporting each partner's share of QBI and related items on a statement accompanying their Schedule K-1 (Form 1065). The Schedule K-1 is used to report a partner's share of income, deductions, and credits from the partnership. The QBI deduction is a deduction allowed under the Tax Cuts and Jobs Act (TCJA) to eligible taxpayers who have income from a qualified trade or business.

When the partnership determines the QBI and related items for each partner, this information is provided to the individual partners through their Schedule K-1. The Schedule K-1 serves as a record of the partner's distributive share of various items, including QBI. Partners then use the information on the Schedule K-1 to calculate their own QBI deduction when filing their personal tax returns.

This approach aligns with the pass-through nature of partnerships, where income, deductions, and credits flow through to the individual partners, who report and calculate their tax liabilities based on their share of the partnership's activities. The QBI deduction, being a significant tax benefit for eligible taxpayers, is thus determined at the individual partner level, reflecting each partner's share of QBI generated by the partnership.