Molde 6.onewi Oww ework (Chapter 6) Help Save a Katie is a shareholder in Engine

Question

Molde 6.onewi Oww ework (Chapter 6) Help Save a Katie is a shareholder in Engineers One, a civil engineering company. This year, Katie's share of net business income from Engineens One is $200,000 Assume that Katie's allocation of wages paid by Engineers One to its employees is $300000 and her allocation of Engineers One's quelified property is $150,000 (unadjusted basis of equipment, all purchased within the past three years). Assume Katie hes no other business income, no capital gains or qualified dividends, and that her taxable income before the deduction for qualified business income is $400.000 Required: a. Calculate Katie's deduction for qualified business income b. Assume the same facts as earlier, except Katie's net business income from Engineers One is $400,000 and taxable income before the deduction for qualified business income is $350,000 Deduction f for qualified business

Explanation / Answer

Deduction for qualified business income

Part A ($)

Part B ($)

Step -1: Calculate the initial deduction amount w.r.t taxpayer’s share of qualified business which is the lesser of 20% of the share in QBI ( 20% of $2,00,000 = $40,000) or

            40,000

80,000

her share of wage and capital limitation – Greater of

(As this exceeds the limit & least is 40,000)

The aggregate income in step 1 cannot exceed 20% of taxpayer’s taxable income over taxpayer’s net capital gains.

Here net capital gains are nil. So 20% of taxable income is 80,000 ( 20% of 4,00,000)

20% of 3,50,000

= 70,000

Therfore, Katle’s deduction for qualified business income is

        40,000

70,000

Deduction for qualified business income

Part A ($)

Part B ($)

Step -1: Calculate the initial deduction amount w.r.t taxpayer’s share of qualified business which is the lesser of 20% of the share in QBI ( 20% of $2,00,000 = $40,000) or

            40,000

80,000

her share of wage and capital limitation – Greater of

1. 50% of her share in business wages ( 50% of 3,00,000= 1,50,000) Or
2. Sum of 25% of allocable share of wages plus 2.5% of her share of unadjusted basis of tangible depreciable property held by business at the close of taxable year (25% of 3,00,000 + 2.5% of 1,50,000 = 78750)

(As this exceeds the limit & least is 40,000)

The aggregate income in step 1 cannot exceed 20% of taxpayer’s taxable income over taxpayer’s net capital gains.

Here net capital gains are nil. So 20% of taxable income is 80,000 ( 20% of 4,00,000)

20% of 3,50,000

= 70,000

Therfore, Katle’s deduction for qualified business income is

        40,000

70,000

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