EricF

I take this back. The amount of wages properly allocable to QBI is the amount taken into account under Regs. Sec. 1.199A-3 (Reg. Sec. 1.199A-2(b)(4) . So if only 30% of your wages are used to determine QBI, you would show 30% of the W-3 amount.

W-2 wages: There is no over-inflation of wages, if all the wages are reported on Form W-2. and no employees are on a foreign payroll. You are following the method specified by the regulations. Unadjusted basis: If assets are being used both in the U.S. trade or business and the foreign trade or business, they are being used in the U.S. trade or business, so I think their cost would be included and not apportioned. Can the identification of assets be put on the client? If you are using ADS for assets used outside the U.S. you are overstating depreciation because GDS is required, and the method is straight-line over a longer life. As I read the 1120S instructions, the statement should be attached if there is more than one trade or business. I think it is referring to more than one qualified trade or business, so if you don't have that, a statement is not required. Of course, you can attach anything you want, but I'm just saying it's not required. The attachment to the K-1 is to help the shareholder, not inform the IRS.

Qualified business income must be effectively connected with a U.S. trade or business within the meaning of section 864(c) (Reg. Sec. 1.199A-3(b)(2)(A)). W-2 wages must be reported on a return filed with the Social Security Administration (Reg. Sec. 1.199A-2(b)(2)(iii)), so I would use the Form W-3 filed by the employer for the number. Unadjusted basis must be held by and used in the qualified trade or business (Reg. Sec. 1.199A-2(c)(1)(i)). How hard would it be to determine the cost of the assets used in the U.S. trade or business? If there are foreign fixed assets, I assume you would already be making the distinction by using ADS for depreciating foreign fixed assets and GDS for depreciating U.S. fixed assets.

Well, we got the basic structure from Congress when the law was enacted in December 2017. There were so many open questions at the time that needed IRS guidance, it was hard to move ahead with confidence. Mid-2018, the IRS came out with methods for computing W-2 wages for Sec. 199A. Then we got proposed regulations in September that answered a lot of questions, but IRS was asking for comments, so it was open to change. It was enough to do some effective year end planning for 2018. The final regulations were released in mid-January 2019. That's when I really started studying the various provisions. The final regulations accepted some suggestions from practitioners, but rejected many more that were basically a wish list from practitioners. At the same time, we got the real estate safe harbor in an IRS notice. So, it has been on my radar screen all year, but my intense learning has been over the past month.

The election to aggregate activities for Sec. 199A and the choice to group rental activities to meet the 250 hour safe harbor are two different things. The choice to group rentals under the safe harbor is one you can make and not have to disclose in the annual statement required by Notice 2019-07. There is a consistency requirement, though, and taxpayer may not vary the chosen treatment year to year unless there has been a significant change in facts and circumstances. The aggregation election under the regs under Sec. 199A is for the purpose of accumulating the QBI, W-2 wages, and unadjusted basis for application to the aggregated group of activities. This also has a consistency requirement. There is an annual disclosure of the activities that are being aggregated. That reporting must be consistently reported in all subsequent years. In a subsequent year, if there is a significant change in facts and circumstances such that if the prior aggregation of trades or businesses no longer qualifies for aggregation under the rules, the activities cease being aggregated, and the taxpayer must reapply the rules to determine a new permissible aggregation, if any.

Buildings are included in the unadjusted basis number. They are still in their depreciable life if they are less than 27.5 years old, or 39 years old as the case may be. Assets with a depreciable life of less than 10 years can be included if they were placed in service in the last 10 years. Passthrough entities (RPEs) can aggregate, and individuals can aggregate. An individual may add activities to aggregation done by an RPE, but may not subtract activities from that aggregation.

Yes. If the deduction of formerly suspended losses reduces taxable income enough, 20% of taxable income may be less than 20% of QBI, limiting the benefit in that way.

The holding period begins at the date the stock is received rather than when the restrictions come off. So your client can sell the stock as soon as the restrictions come off and get long-term capital gain treatment.

I don't think it kills Sec 199A per the law, but ATX doesn't list it as an activity on the Sec 199A Worksheet and therefore no QBI. In ATX, it's looking like you have to create a Sch C.

Sorry, I did mean before 2018. The reference is Regs. Sec. 1.199A-3(b)(iv).

I've seen that on a return, too. I thought for a minute that with the new reporting form, IRS might have changed how they wanted to see it. But I looked at the 1040 instructions, page 30, and for partially taxable pensions, it says box 4a should show the amount from Line 1 of Form 1099-R. So I think ATX is wrong on this one.

Yes, you can code a Box 7, 1099-MISC to, among others, Schedule C, Other Income (no SE tax), and Other Income (SE tax). For nonemployee compensation without a Schedule C, I use Other Income (SE tax) and it goes to Sch SE as well as Line 21.

QBI is computed separately for each activity, so for your activity with negative QBI, no QBI deduction will be computed. The negative QBI carries forward to reduce positive QBI in subsequent year, but wages and unadjusted basis numbers from 2018 do not carry forward. If there is positive QBI from other activities in the same year, the negative QBI will be used against that positive QBI and not carried forward. The wages from your activity can't be used in computing the QBI deduction of another activity unless the activity qualifies to be aggregated with other activities and the aggregation election is made.

Carryforward losses from years before 2017 do not reduce QBI. That goes for NOL, PAL suspended losses, and basis suspended losses.

Sole proprietors qualify for QBI as well. The person receive nonemployee compensation on a 1099-MISC should qualify too. I have normally reported such income with no related expenses as "other income" to avoid Schedule C, since Schedule C taxpayer have a slightly higher audit rate. Schedule C reporting may be the cost of trying to obtain QBI treatment for nonemployee compensation.

Yes, enter the QBI deduction, likely the amount from the 1099 less any self-employment tax deduction, in the Sec 199A worksheet. But I can't figure out how to add "other income" to the activities list. ATX only lists the activities coming form Schedule C, Schedule E, Schedule F, and K-1s. Does that mean that we have to have a Schedule C for ATX to compute QBI?

It would be nice for the 1120S preparer to provide detail of the QBI calculation in the K-1 notes, but in most cases, the 1040 preparer would be able to figure QBI (if the K-1 has indicated that there is QBI) by considering the various numbers on the K-1 and which ones should enter into QBI income, as well as other 1040 adjustments to income such as the deductions for self-employment tax, self-employed pensions, and self-employed health insurance..

Remember that the income levels for phaseout of the child tax credit and other dependent credit have been increased significantly, so more taxpayers can benefit from them. On a joint return, the phaseout begins at $400,000 of AGI. For single, head of household, and married separate return, the phaseout begins at $200,000.

There's nothing in the law that limits the availability of Sec 199A to taxpayers who are not dependents. Be aware, though, that there is also a limit on the deduction to 20% of taxable income. After the dependent deducts his standard deduction, there may be little taxable income left on which to compute a 20% deduction.

Thanks, ILLMAS. Clicking on the gray box under the 17c box takes you to the tab for detail for Box 17d, Schedule K for an 1120S. I had always been finding the tab among the Pages & Worksheets. That's where the 199A amounts are entered for presentation on the K-1, which is a requirement for an owner of an entity to get the QBI deduction for that business.

Yes, you have to adjust the K-1 number to the amounts the individual is getting from the business. I don't understand why people are not getting the amounts to flow from the K-1, though you have to adjust the amount flowed through. Our ATX is flowing it fine.

I removed the override on the return where it was computing a franchise tax of greater than $200, and it's now computing $200 correctly. For kicks, I put in $1,000,000 value and still get $200. At $1,100,000, it's $350, which is also right. I think they have fixed it.

If you choose ADS (Alternative Depreciation System) under Sec. 168(g), farm property can be depreciated straight line over 10 years.

It's all 5-year for assets acquired after December 31, 2017. Section 168(e)(3)(B)(vii).

If you're under the taxable income thresholds and have a business that has regular and continuous activity, you have a qualified business and can take the 20% deduction. The exclusion for specified businesses is the same under those thresholds, but for specified businesses the 20% deduction can phase completely out above those thresholds. Thankfully, IRS in the regulations interpret the restriction for where the principal asset is the reputation or skill of one or more owners or employees was limited to businesses that receive fees, compensation, or other income for endorsing products or services, or businesses in which a person licenses or receives fees, compensation, or other income for the use of an individual's image, likeness, name, signature, voice, trademark, or any other symbols associated with the individual's identity, or businesses receiving fees, compensation, or other income for appearing at an event or on radio, television, or another media format.