Question

Margen is single and has taxable income before the QBI deduction of $173,300. Margen owns a sole proprietorship (not a professional service) that produced net ordinary income of $180,000 and subject to self-employment tax of $21,300. The business paid total W-2 wages of $74,000 and the total unadjusted basis of prop­erty held by the business is $120,000. How much is Margen’s QBI deduction?

Answer 1

Margen is filing singlly

Calculation of QIB on the basis of taxable Income if taxable Income Exceeds $ 157500, the following are the calculation.

In this case Taxable Income Exceeds $ 157500

Ist Method : 50% of Companies W-2 Wages = 50% * $ 74000 = $ 37000

IInd Method : 25% of W-2 wages Plus 2.5% of unadjusted basis of all qualified properties

=  25% * 74000+ 2.5% * $ 120000

= $ 18500+ $3000 =$ 21500

Margen can choose greater deduction of QIB that is = $ 37000