Question

Rita a single taxpayer has a net Schedule C income of$150,000 from a specified service trade or business. She also has Form W-2 income and her taxable income for the year exceeds $207,500. As Rita's Tax Professional what information will you share with her eligiblity to claim the qualified business income deduction? A) Unfortunately she is not entitled to the deduction on her 2018 return since her taxable income is over the top threshold; B) She qualifies for the deduction but the amount will be limited based on her income; C) She qualifies for the deduction which will apply to 20% of her taxable income; D) She qualifies for the deduction which will apply to 20% of her net Schedule C income

Answer 1

As per the Tax Cuts and Jobs Act, income from a specified service trade or business (SSTB) can be Qualified Business Income (QBI) if it is less than $157,500 for taxpayers (excluding married couple filing a joint return). So, Rita's Schedule C income qualifies for QBI as it is $150,000. Her taxable income exceeds $207,500.

As per the IRS, "For eligible taxpayers with total taxable income in 2018 over $207,500 ($415,000 for married filing joint returns), the deduction for QBI may be limited by the amount of W-2 wages paid by the qualified trade or business and the UBIA of qualified property held by the trade or business."

Thus, Rita qualifies for the deduction but the amount will be limited based on her income. Option B is correct.