Question

Susan, a single taxpayer, owns and operates a bakery (as a sole proprietorship). The business is not a specified services business. In 2020, the business pays $60,000 in W-2 wages, has $150,000 of qualified property, and $200,000 in net income (all of which is qualified business income). Susan also has a part-time job earning wages of $13,600, receives $3,400 of interest income, and will take the standard deduction. What is Susan’s qualified business income deduction?

Please show all steps, thank you :-)

Answer 1

Modified Taxable Income

Net Income = 200000 +

Partime income = 13600+

Interest income = 3400

= 217000

Less Standard deduction =12400 (standard deduction for self employed)

=204600$

Calculation of qualified Business Income deduction

A) 20% of qualified buisiness income = (200000*20%) =40000

B) But not more than the greater of

1) 50% of W2 wages (60000*50%) = 30000$

2) 25% of the w2 wages + 2.5%  of unadjusted basis o qualified property = (60000*25%)+(150000*2.5%) = 15000+3750 =18750

C) And not more than 20% of the modified taxable income

Modified taxable income

20% of 204600 = 40920$

So the qualified business deduction for susan is limited to 30000$