Question

2. Jason and Paula are married. They file a joint return for 2020 on which they report taxable income before the QBI deduction of $200,000. Jason operates a sole proprietorship, and Paula is a partner in the PQRS Partnership. Both are a qualified trade or business and neither is a specified services business. Jason’s sole proprietorship reports $150,000 of net income, W-2 wages of $45,000, and has qualified property of $50,000. Paula’s partnership reports a loss for the year, and her allocable share of the loss is $40,000. The partnership reports no W-2 wages and Paula’s share of the partnership’s qualified property is $20,000. What is their qualified business income deduction for the year?

	a.	$-0-.
	b.	$11,750.
	c.	$22,000.
	d.	$30,000.
	e.	None of these.

Answer 1

Jason's and Paula's Taxable Income before QBI Deduction

= $200,000 and hence W2 wages is excluded for them.

Hence Jason's QBI= (Net Income*20%) 20% of Net income is allowed as QBI

=150000*20%

=$30000...............a

Paula's QBI =(Net Income *20%)

(40000*20%)

=$8000.....................b

Step 1- QBI deduction without any limit = Jasons Net income -Paula's allocated share *20%

=(150000-40000) *20% OR (30000+8000) *20%

=110000*20% OR 38000*20%

=$22000

Step 2- not more than 20% of taxable income= 20% *200000

=$40000

Hence Qualified Business Income deduction for the year is option (C) = $22000