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Exercise 15-17 (Algorithmic) (LO. 3, 4) Thad, a single taxpayer, reports taxable income before the QBI...

Exercise 15-17 (Algorithmic) (LO. 3, 4)

Thad, a single taxpayer, reports taxable income before the QBI deduction of $171,500. Thad, a CPA, operates an accounting practice as a single member LLC (which he reports as a sole proprietorship). During the tax year, his proprietorship generates qualified business income of $137,200 after deducting self-employment taxes, W–2 wages of $102,900, and $8,800 of qualified property.

Assume the QBI amount is net of the self-employment tax deduction. If required, round any division to two decimal places. Round your final answer to the nearest dollar.

What is Thad's QBI deduction?

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Answer #1

Calculation of Thad's qualified business income deduction:

Thad's QBI deduction = 10,976

Explanation:

Thad has a “specified services” business. As his taxable income before the QBI deduction is more than $157,500 (but less than $207,500), he will receive a partial QBI deduction. Given the W-2 wages he reports, his QBI deduction will not be limited by the W-2 wages/capital investment limitation (50% of his W-2 wages is $51,450; this amount will exceed the other QBI deduction computations)

137,200 * 20% * 40% = 10,976

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