Question

Chris is carrying on accounting practice as a sole proprietor earning $150,000 for the year 2019. His wife has a full -time job and her wages (W-2 Income) is $80,000. Chris has one employee and pays $50,000 salary to him. The Chris family files joint returns and avails benefits of standard deductions. Please calculate his Section 199A benefits for the year 2019. Please explain your answer.

Answer 1

Calculation of Taxable Income before Section 199A (QBI) deduction

Income from sole proprietorship	$         150,000
Wife's Wages Income	$           80,000
Less Standard Deduction	$         (24,800)
Taxable Income before QBI deduction	$         205,200

Since . this does not exceed the phase out limit, Chris and his wife would be allowed a QBI Deduction

Gross QBI deduction = 20% of Qualified Business Income

= 20% of $150,000

= $30,000

Less; Reductions = 50% of the wages paid

= 50% of $50,000

= $25,000

Net QBI / Section 199A benefits = $30,000 - $25,000

= $5,000

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