Kelly operates a sole proprietorship with qualified business income of $920,000. Her business paid W-2 wages of $250,000 and owns depreciable tangible property with an unadjusted basis of $410,000. Compute Kelly's allowable QBI deduction before the taxable income limitation.

Question

Quizplus · Accepted Answer

The QBI deduction is calculated as the lesser of (a) 20% of qualified business income ($920,000 x 20% = $184,000) or (b) the greater of:
- 50% of W-2 wages paid ($250,000 x 50% = $125,000)
- 25% of W-2 wages paid ($250,000 x 2.5% ) + 2.5% of the unadjusted basis of depreciable property ($410,000 x 2.5% = $10,250), which equals $20,250.
Since $125,000 is greater than $20,250, Kelly's QBI deduction is $125,000.

Kelly Operates a Sole Proprietorship with Qualified Business Income of $920,000