Question

Pat's taxable income exceeds $157,500 and thus he is required to phase out his QBI deduction. The phase-out calculation is:

Answer 1

A) The lesser of 50% of business wages or 25% of wages plus 2.5% of the unadjusted basis of qualifying property

Step-by-step explanation:

If a single filer's taxable income exceeds the $157,000 by $50,000 or more, their QBI deduction cannot exceed the greater of:

• 50% of taxpayer's allocable share of the W-2 wages paid with respect to the qualified trade or business
• the sum of 25% of such wages plus 2.5% of the unadjusted basis immediately after acquisition of tangible depreciable property

The qualified business income (QBI) deduction refers to taxable income passed through by partnerships, S corporations, LLCs, or a sole proprietorship. This is a below the line deduction that doesn't lower your AGI, but it lowers the amount of taxes.