QBI - QUALIFIED BUSINESS INCOME DEDUCTION

• WHAT IS IT? Under Section 199A of the Internal Revenue Code, you may be able to deduct up to 20% of your qualified business income PLUS 20% of your REIT dividends and PTP income.

• WHAT? Qualified Business Income is referring to the net amount of the qualified income, gains, deductions and losses.

• DOESN’T CHANGE the calculations on Schedule C or Schedule SE.

• CALCULATE QBI AMOUNT: Use Form 8995 to calculate your QBI deduction. Instructions.
  It is the LESSER of 20% of net Business Income AND Taxable Income (see sample calc. below)

• ENTER ON: Form 1040, Line 9 (click for instructions)

• Probably the fastest way to get ‘up to speed’ on this new QBI deduction is to read the IRS’ FAQs page. Tax Cuts and Jobs Act, Provision 11011 Section 199A - Qualified Business Income Deduction FAQs

Pub 535 - Business Expenses is the best IRS publication to obtain the most thorough guidance on ALL business expenses and this tax deduction. It also explains what is and isn’t deductible.

Click to read the code Title 26 U.S. Code § 199A

Update Feb 7, 2019.
TaxSlayer® will accurately compute the Qualified Business Income Deduction when the Health Insurance premiums to be used for the Self-employed Health Insurance Deduction are entered directly in the Schedule C - General Expense screen.

The distinction being made here is that TaxSlayer® will not properly make the deduction to QBI if the Health insurance premium amount to be used for the Self-employed Health Insurance Deduction is entered into the software as an Adjustment to Income.

U of I Tax School QBID Calculator (click)

Which Entities qualify?

• AARP Volunteers: Only sole proprietorships are within Scope.

• A direct domestic trade or business, or one operating as a pass-through entity, which is allowed to deduct ordinary and necessary business expenses.

• NOT a C-corporation

What income Qualifies?

• Income or Loss attributed to each trade or business in the form of

  • Income

  • Gain

  • Deduction

  • Loss

• Net Losses will be carried forward to a subsequent year (worksheet, line 3)

• Use the Form 8995 to figure QBI deduction if:

  • You have Qualified Business Income

  • Your 2018 taxable income is LESS than $157,500 ($315,000 if married filing joint)*, AND

  • You aren’t a patron in a specified agricultural or horticultural cooperative.

• Anti-abuse rules prevent manipulation of income & losses between a taxpayer’s business entities.

* NOTE: This is the Scope limit for AARP Tax-aide. Beyond this taxable income, there are phaseout rules to consider. We are not able to prepare returns which fall within the phaseout range. Taxpayers with taxable income within the phaseout range will complete the 2018 Qualified Business Income Worksheet - Part III (Phased-in Reduction) that is found in 2018 Pub 535.

Sample Calculation

Example.

• Taxable Income on Form 1040, Line 10 is $15,000.

• Business Income from Schedule C is $23,000.

  • [Sch C is now rolled up onto Sch 1, Line 12]

  • [Sch 1 - Additions to Income roll up onto Form 1040, Line 6]

• QBI Deduction is applied to the LESSER of $15,000 AND $23,000.

• Qualified Business Income Deduction on Form 1040, Line 9 is
  20% of $15,000 = $3,000