Question

Tammy, a single taxpayer, owns and operates LittleCo, a sole proprietorship that is a qualified trade or business. Tammy has $100,000 in qualified business income from LittleCo. She has no other items of income or loss and $25,000 of itemized deductions. Assume the QBI amount is net of the self-employment tax deduction. What is her qualified business income deduction for 2020

Answer 1

Answer: $15,000

Step-by-step explanation:

As of December 31st 2017, eligible tax paying Sole proprietors are allowed to deduct up to 20% of their Qualified Business Income (QBI) from their domestic business. This also applied to QBI from domestic partnerships, S corporation, trust or estate.

For owners of the business, the QBI deduction is net of itemized deductions so with Tammy owning the business, her qualified QBI is;

= 20% * (100,000 - 25,000)

= $15,000