Ellie a single taxpayer) is the owner of ABC, LLC. The LLC a sole proprietorship) reports QBI of $900,000 and is not a "specified services" business. ABC paid total W-2 wages of $300,000, and the total unadjusted basis of property held by ABC is $30,000. Ellie's taxable income before the QBI deduction is $740,000 this is also her modified taxable income). What is Ellie's QBI deduction for 2018?

Question

Quizplus · Accepted Answer

To calculate Ellie's QBI deduction, we need to follow the three-step process for determining the deduction:

Step 1: Determine the tentative QBI deduction amount.

Tentative QBI deduction = lesser of:

- 20% of QBI ($900,000 x 0.20 = $180,000)
- the greater of:
  - 50% of W-2 wages ($300,000 x 0.50=$150,000)
  - the sum of:
     - 25% of W-2 wages ($300,000 x 0.25 = $75,000)
     - 2.5% of the unadjusted basis of qualified property ($30,000 x 0.025 = $750)

The greater of the above options is $150,000, so this is the tentative QBI deduction amount.

Step 2: Determine the QBI deduction limitation based on taxable income.

Ellie's taxable income before the QBI deduction is $740,000. Since this is less than the threshold amount for single taxpayers ($157,500 for 2018), there is no QBI deduction limitation based on taxable income.

Step 3: Calculate the final QBI deduction amount.

Final QBI Deduction Amount = Tentative QBI deduction amount ($150,000) x QBI Deduction Limitation Percentage.

Since Ellie's taxable income before the QBI deduction is also her modified taxable income, her QBI Deduction Limitation Percentage is 100%, and the final QBI deduction amount is $150,000 (same as the tentative QBI deduction amount from step 1).

Therefore, the answer is B) $148,000.

Ellie a Single Taxpayer) Is the Owner of ABC, LLC