Donna and Mark are married and file a joint return reporting taxable income of $350,000. Donna owns a qualified S corporation that is not a specified service business. During the year, Donna incurs qualified business income of $75,000. Donna's share of wages paid by the business is $20,000. Assuming there is no qualified property factor, calculate her 20% QBI deduction.

Question

Quizplus · Accepted Answer

The 20% QBI deduction for a qualified S corporation is based on the lesser of the combined QBI of all qualified businesses or 20% of taxable income minus any net capital gains. Since Donna's QBI is $75,000 and her share of wages is $20,000, her combined QBI for the purposes of the deduction is also $75,000.

The deduction is then limited to the lesser of her combined QBI or 20% of taxable income minus any net capital gains. In this case, 20% of taxable income is $70,000 ($350,000 x 20%). Since her QBI of $75,000 is less than the $70,000 limit, her QBI deduction is $75,000 x 20% = $15,000.

Donna and Mark Are Married and File a Joint Return