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Qualified Business Income Deduction


ETax847

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On 11/15/2018 at 10:00 AM, ETax847 said:

Does anybody have any good websites that clearly explain the QBI deduction? It seems rather complex and wonder if any particular websites do a good job simplifying it (if thats even possible)?

Anything to "clearly" explain the QBI deduction?  HA HA HA!  "It seems rather complex."  Understatement of the century.  "Simplifying" it?  You jest!  Clear and simple are not adjectives that will ever explain the QBI, and complex doesn't do it justice.  I took a 4-hour course on it, learned more in an update seminar, and read a lot.  The one clear takeaway I can offer is that almost no one will get to deduct 20% of their net profit.  There is a limitation that applies to everyone:  You can deduct the LOWER of 20% of your net profit or 20% of your TAXABLE income (ignoring here the other limits imposed by AGI or type of business).  For taxpayers whose business is pretty much their only income, their taxable income is certain to be less than their profit. 

For example, you are self-employed as a tax professional and have $100k profit.  You adjust that by one-half of SE tax, self-employed health insurance, and maybe contributions to a retirement plan, and then subtract your standard deduction.  Your taxable income is now $50k.  Your QBI deduction is limited to .2 X $50k = $10k, not the 20% $20k you were dreaming of.  The only people I can imagine that will get the full 20% of net profit are those who have W2 jobs and a little side business.

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On 11/16/2018 at 4:03 PM, Max W said:

Both references are very good - written by the same person - the 2nd one summarizes the main points.

Both of those articles where wrote prior to Proposed Reg 1.199A,  you should be able to google something more current, I agree they are a good starting point.

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Sitting through a webinar for Section 199A.  I guess I didn't expect this provision to be as complicated as it is...silly me.  Maybe my interpretation is misguided?  The webinar speaks to a bunch of different provisions that surround 199A.  Do you think ATX will incorporate any type of technology to assist us with this?  Even through the "Check your Return" review?   Has anyone found a straightforward guide that speaks to it?

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In order to have tax withheld from my RMD to cover my SE tax (husband is now retired so no more withholdings from his wages), I used the planner.  Imagine my surprise when I saw a deduction for Sec. 199A!  I followed the jump to the calculation and commend ATX for detailing it but, of course, I don't qualify.  So will there be a prompt to confirm that a taxpayer qualifies?  I happen to be the only one in my current client list affected by this disqualification but imagine that there will be some, um, mistakes with this.

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In my earlier post I didn't want to detract from the main point that you can only deduct the lower of 20% of either taxable income or net profit.  Taxable income for this purpose is what is shown on your tax return MINUS cap gains and qualified dividends, which already get preferential tax treatment.  Even this simple step is not simple!

What scares me about the complexity is that I, and I presume everyone on this board, am not comfortable entering numbers and "letting the software figure it out."  Software is not perfect, and I want to be able to see that my data entry was accurate and flowed to wherever it was supposed to on the return and the result makes sense. There are so many moving parts to the QBI deduction that I'm not sure I will ever trust the numbers that the software spits out, and I sure won't have time or inclination to do them all by hand.  UT had a worksheet in the projection software that showed the calculations which I think I can follow once I have more experience with it.  Up until now I've had a reasonable amount of confidence that I knew what I was doing most of the time and could produce an accurate return.  This coming season that confidence is diminished, and I don't like the feeling.

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8 hours ago, Ringers said:

Here is a QBID calculator the gave us last week at the Univ of IL taxschool.  It seems pretty good.

 

https://taxschool.illinois.edu/qbi.html

I would double check this one a few ties by another means before relying on it.  UI Taxschool put out an Offerin Compromise booklet a few years ago and it was riddled with errors.

The most egregious was the calculations for one of the 22 types of OIC payment plans. 

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