Question

Campbell, a single taxpayer, has $400,000 of profits from her general store that she operates as a sole proprietorship. She has $100,000 of employee wages, $40,000 of qualified property, and $500,000 of taxable income before the deduction for qualified business income. How much is Campbell's deduction for qualified business income

Answer 1

$80,000

Step-by-step explanation:

The deduction of Qualified business income may be limited by the amount of W-2 wages paid by the qualified trade or business and the unadjusted basis in qualified property immediately after acquisition (UBIA) of the qualified property held by the trade or business.

Hence, the deduction will be out of the lesser of the three below:

i. W-2 wages is $100,000

ii. 20% of qualified business income = 20% * 400,000 = $80,000

iii. 20% of taxable income = 20% * 500,000 = $100,000

From the information above, $80,000 will be the amount of Campbell deduction for qualified business income