Question

Shelly reports $200,000 of QBI from her local jewelry store (a sole proprietorship). Shelly's proprietorship paid $30,000 in W–2 wages and owns $20,000 of qualified property. Shelly’s spouse earned $74,000 of wages as an employee, they earned $20,000 of interest income during the year, and they will be filing jointly using the standard deduction. What is their QBI deduction for 2018?

Answer 1

As per the applicable rules, the QBI deduction is limited to 20% of QBI if the total taxable income is less than $315,000 for joint filers. Interest income, other than allocable to the business, is not included in QBI. Therefore, the interest amount of $20,000 is not relevant in the given case. The total taxable income of Shelly and her spouse before standard deduction turns out to be $274,000 (200,000 + 74,000) which less than the threshold limit of $315,000. Therefore, the QBI deduction that can be claimed for the year 2018 would be 20% of $200,000. The value of QBI deduction is arrived as below:

QBI Deduction for 2018 = QBI*20% = 200,000*20% = $40,000 (answer)

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Notes:

The value of W-2 wages and qualified property would have been taken into consideration if the total taxable income had exceeded the threshold limit of $315,000 in order to determine the limits on QBI deduction.