Question

Haley, a single taxpayer, owns and operates a Cafe (as a sole proprietorship). The business is not a specified services business. In 2019, 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). Haley also has a part-time job earning wages of $11,000, receives $3,200 of interest income, and will take the standard deduction. What is Haley’s qualified business income deduction?

Answer 1

A. Qualified Business Income(QBI):- This is the Net income earned over and above the expenses. This is the business profit which is being earned over an accounting period. To calculate the QBI following are not considered

1. Interest Income 2. Income Earned Outside USA 3. Capital gain or Losses 4. Dividends and 5.Certain payments made to partners and Shareholders.

B. Qualified Business Income Deduction:- To calculate the QBI deduction the certain income limits have been defined. The QBI deduction is available at the rate of 20% of the QBI to the self employed and small business owners.

Single Filer- The limit in 2020 is $ 1,63,300 as Total Income

Joint filers- The Limit in 2020 is $ 3,26,600 as Total Income.

Since Haley does not qualify the Single Filer Limit as mentioned above, his QBI deduction is 0(Zero).