Sarah is a 25% partner in a partnership that produces $750,000 ordinary income from manufacturing a product, her share of partnership income is $187,500. The partnership paid $150,000 of W-2 wages. Sarah is single and has taxable income of $500,000. What is Sarah's qualified business income deduction for 2018?

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The qualified business income deduction is 20% of Sarah's share of partnership income, which is $187,500. The deduction is limited to the greater of 50% of W-2 wages paid by the partnership or 25% of taxable income. In this case, the deduction is limited to 25% of taxable income, which is $125,000. However, the deduction is phased out for taxpayers with taxable income above certain thresholds. For Sarah, the deduction is phased out by 50% because her taxable income is above $500,000. Therefore, Sarah's qualified business income deduction is $18,750.

Sarah Is a 25% Partner in a Partnership That Produces