Free Solved Thad, a single taxpayer, has taxable income before the QBI deduction of $194,000. Thad, a CPA, operates an accounting practice as a single member LLC (which he reports as a sole proprietorship). During 2020, his proprietorship generates qualified business income of $155,200, W–2 wages of $116,400, and $10,800 of qualified property.


There  is asked three Questions. There are solution of one by one question that is given below.

1)

Thad, a single taxpayer, has taxable income before the QBI deduction of $194,000. Thad, a CPA, operates an accounting practice as a single member LLC (which he reports as a sole proprietorship). During 2020, his proprietorship generates qualified business income of $155,200, W–2 wages of $116,400, and $10,800 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 qualified business income deduction?

2)

Scott and Laura are married and will file a joint tax return. Laura has a sole proprietorship (not a “specified services” business) that generates qualified business income of $300,000. The proprietorship pays W–2 wages of $40,000 and holds property with an unadjusted basis of $10,000. Scott is employed by a local school district. Their taxable income before the QBI deduction is $386,600 (this is also their modified taxable income).

Assume the QBI amount is net of the self-employment tax deduction.

  1. Scott and Laura’s QBI deduction is $_____, taxable income is $_____, and tax liability is $_____ for 2020.
  2. After providing you the original information in the problem, Scott finds out that he will be receiving a $6,000 bonus in December 2020 (increasing their taxable income before the QBI deduction by this amount). Redetermine Scott and Laura’s QBI deduction, taxable income, and tax liability for 2020.

Scott and Laura’s QBI deduction is $_____, taxable income is $_____, and tax liability is $_____ for 2020.

  1. What is the marginal tax rate on Scott’s bonus? Round your answer to one decimal place.

3)

Susan, a single taxpayer, owns and operates a bakery (as a sole proprietorship). The business is not a “specified services” business. In 2020, the business pays $100,000 in W–2 wages, has $150,000 of qualified property, and generates $150,000 of qualified business income. Susan has no other items of income or loss and will take the standard deduction of $12,400.

Assume the QBI amount is net of the self-employment tax deduction.

Step 1 of 2

In the problem, it is given that a “Thad” has taxable income before the QBI deduction of $194,000, and during 2020, his proprietorship generates qualified business income of $155,200, W-2 wages of $116,400 and$10,800 of qualified property.

Thad’s qualified business income is to be determined, assuming the OBI amount is net of the self- employment tax deduction.

The Internal Revenue Service (IRS) refers to income obtained through a business or trade as qualified business income (QBI). If a person, trust, estate, or S corporation owns qualifying business income from a domestic business that is run as a sole proprietorship, partnership, LLC, S corporation, or farm, they are eligible for this deduction.

 

Explanation:

Thad’s qualified business income deduction can be computed by firstly calculated Qualified Business income then determine the QBI deduction percentage and calculate W-2 wage Limit now deduction percentage and W-2 Wage limit is to be compared then lastly calculate the QBI deduction.

 

Step 2 of 2

Thad’s qualified business income deduction is computed using the lesser of two amount : 20% of qualified business income (QBI) or the greater of 50% of W-2 wages or 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property.

Step 1 –

20% of QBI

20%×$155,200= $31,040

Step 2-

= 50% of W-2 wages

=50%×$116,400 = $58,200

Step 3 –

=25% of W-2 Wages plus 2.5% of the unadjusted qualified property .

=25%×$116,400+2.5%×$10,800

= 29,100+270

= $29,370

Now the lesser of two results from step 1 and step 3 . The lesser amount is Thad’s qualified business income deduction.

So, Thad’s QBI deduction is $29,370

 

Final solution

Thad’s qualified business income (QBI) deduction is $29,370.

 

 

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