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QBI help, please?


NECPA in NEBRASKA

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I think that I know the answer, but I want to make sure that I'm not cheating my client. 

1. Couple owns 100% of S Corp.

2. S corp owns partnership interests in many Real Estate LLCs and LPs, none are PTPS. The partnership interests are minor, with all being under 5% ownership. No REITS.

3. None of the LLCs are SSTBS, but they all have given numbers for QBI. One has numerous businesses. I do not prepare any of the LLC returns, just the 1120S and 1040!

I don't think that the 1120S or couple are able to take QBI, because they don't qualify for the safe harbor, are not eligible to aggregate and none of the LLCS are PTPs or REITS. 

I've been reading and just want to make sure that I'm not missing any reason that they could take the deduction. They are retired and don't perform any duties, except a shareholder meeting. Any QBI would be carried forward, due to losses. Laws like this make me really wish that I could retire now, because it takes up too much time for a few clients that I really don't want to lose.

Thanks!

 

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Your post implies that your client's S Corp isn't an operating business, but instead is just a pass thru for these various investments ?

I have attended seminars and done way more reading and thinking  about this issue  than any other tax issue, since I passed the EA Exam back in 1992 !

The real question is " Does the ownership of these investments by a passive S Corp deny your client the use of QBI deductions on their 1040

when if your client owned these investments directly the QBI deductions would be clearly allowable ?

I don't have a cite for you, but I think the intent of the law and the subsequent rules and regulations

would allow you to  combine all of the QBI numbers from the various investments onto the S Corps K-1 s

and let them flow to your client's 1040. It's what I would do if this was my client.

 

 

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Thank you. I guess that I am overthinking this. Maybe I am thinking too much about the safe harbor rule. They absolutely do nothing for any of these investments except invest. There are very few hours involved and they only own very minor percentages. All of the K1s say ask your tax preparer.
I will keep reading until I can feel better about it. The penalties are huge if I screw it up. I have taken a lot of classes, but I still don't feel like I have great retention. I can hardly wait to see what awesome changes await us after the next election.

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On 8/15/2019 at 11:29 AM, cbslee said:

Your post implies that your client's S Corp isn't an operating business, but instead is just a pass thru for these various investments ?

I have attended seminars and done way more reading and thinking  about this issue  than any other tax issue, since I passed the EA Exam back in 1992 !

The real question is " Does the ownership of these investments by a passive S Corp deny your client the use of QBI deductions on their 1040

when if your client owned these investments directly the QBI deductions would be clearly allowable ?

I don't have a cite for you, but I think the intent of the law and the subsequent rules and regulations

would allow you to  combine all of the QBI numbers from the various investments onto the S Corps K-1 s

and let them flow to your client's 1040. It's what I would do if this was my client.

 

 

It's me again! I'm sorry to be dense, but I have been researching and stewing about this for days  Not all of the k1s were prepared by the same much larger firm  ( which I always feel knows more than I do) and two of them are throwing me off. They say "the ability to take the above QBI deduction is dependent on your ability to probe the activity is a trade or business or aggregate the trade or business with another trade or business. Please consult your tax advisor." I thought that the determination of trade or business was determined at the entity level, which is why the QBI information is on the k1s. If the S Corp or 1040 has to prove that it's a trade or business, I don't think that they can do it. They are just investments and they should not have to aggregate, because their income is super low and it will only be a carryforward anyway. I will continue to read my CPE materials and see if I find something different that says that the taxpayer has to prove it.

I just want to get these returns done, so that I can go on to the next ones. 

Thanks!

 

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16 minutes ago, NECPA in NEBRASKA said:

It's me again! I'm sorry to be dense, but I have been researching and stewing about this for days  Not all of the k1s were prepared by the same much larger firm  ( which I always feel knows more than I do) and two of them are throwing me off. They say "the ability to take the above QBI deduction is dependent on your ability to probe the activity is a trade or business or aggregate the trade or business with another trade or business. Please consult your tax advisor." I thought that the determination of trade or business was determined at the entity level, which is why the QBI information is on the k1s. If the S Corp or 1040 has to prove that it's a trade or business, I don't think that they can do it. They are just investments and they should not have to aggregate, because their income is super low and it will only be a carryforward anyway. I will continue to read my CPE materials and see if I find something different that says that the taxpayer has to prove it.

I just want to get these returns done, so that I can go on to the next ones. 

Thanks!

 

It was too late to edit my question. I meant that QBD is determined at the partner level, which is why I did not think that it was deductible on the 1040 originally, because they are all just various investments with no common ownership among them.  The partnerships had already determined that they had QBI and passed it on.

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Why don't you have a discussion with your clients explaining to them that the situation is unclear due it being  new tax law with numerous gaps in the rules and regulations.

Give them clear explanations of the dollars involved and let them decide. Don't apologize or get too deep in the weeds.

It's doubtful that you will find any more clarity by doing more reading.

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Thanks so much! I'm not normally this dense. I did have them in yesterday and they don't really care what I do. They are elderly and this stuff makes them nuts, too. I just want to prepare the return correctly and not cheat them. It will not have any effect on this year, but it may on later years. 

 

 

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