Question

Hello, this is a question for a master's level tax class regarding IRC Section 199A deductions.

INFORMATION:

Andy and Abby elect to file a joint return and have household income which includes Andy’s $200,000 as an employee of Well's Fargo Bank, and Abby’s $300,000 as a sole proprietor computer programmer. Abby has purchased $150,000 of computer hardware items and $50,000 of office equipment (printers, photocopiers, etc.) for her business. She also pays about $100,000 in W-2 wages to her employees.

REQUIRED:
What, if any, deduction amounts under IRC Sect. 199A is available to Andy and Abby, married filing jointly?

Answer 1

	In this case, total taxable income for Andy and Abby is $500,000 which is more than $315,000
	thus they can claim 20% qualified income deduction.
	20% of qualified income i.e. $300000 = $60000
	Sole proprietor is entitle for deduction equal to 20% of qualified business income
	however, the deduction is limited to greater of
1	50% of wages paid with respect to qualified trade or business
2	25% of wages paid with respect to qualified trade or business + 2.5% of unadjusted basis
	of qualified property
	In this case, deduction will be limited to greater of:
1	50% of wages	$50,000
2	25% of wages + 2.5% of qualified property	$30,000
	Andy and Abby's deduction for qualified business income is $50000