Question

24. Margarita operates a sole proprietorship that earns$ 100,000 of qualified business income after deducting salaries of$ 300,000. The sole proprietorship is not a specified service business. She files a single tax return for 2020. Assume her taxable income before the

QBI deduction is$ 175,000. Margarita's QBI deduction for 2020 is:

a. $-0-.

b. $20,000.

c. $35,000.

d. $60,000.

e. $80,000.

Answer 1

Income of Margarita is in excess of the limit defined for "Single" (assumed) tax filers of $ 163300.

Therefore th QBI deduction will be the lower of -

• 20% of QBI.
• 50% of W-2 wages

(Note since asset details are not avaialble 25% of W-2 wages plus 2.5% of the unadjusted basis of all qualified property portion option ignored)

With ofcoure overall ceiling of 20% of taxable income without the QBI deduction i.e. 20%*175000 = 35000

20% of QBI = 20%*100000 = 20000

50% of W-2 wages = 50%*300000=150000

Lower of the above is 20000 and the same is also below overall limit of 35000.

Margarita QBI deduction therefore is 20000 (option b)