Question

Mary, (filing as single without dependents) is self employed. Her taxable income, solely from her business 2019 is $150,000 (before the deduction for qualified business income). What is the amount of Mary's qualified business income deduction?

Answer 1

In a pass-through business like Sole proprietorship, partnership, S corporation, whereby the profit or loss of business is passed on to members or shareholders of business, the qualified business income deduction of 20% has been introduced. It is also known as section 199A deduction.

As Mary is self-employed, the taxable income would have included the deduction for self-employment tax. The qualified business income deduction is provided on the qualified business income (it is before providing deduction for self-employment tax). Therefore qualified income = 150000/(1-(92.35%*15.3%*50%)) = $161403

Mary's qualified business income deduction = 20% * qualified business income

= 20%*161403 = $32281