Exam 2: The Deduction for Qualified Business Income for Pass-Through Entities

Taylor owns a wide variety of commercial rental properties held in a single-member LLC. Her LLC reports rental income of $750,000. The LLC pays no W-2 wages; rather, it pays a management fee to an S corporation that Taylor controls. The management company pays W-2 wages, but reports no income or loss). Taylor's total unadjusted basis of the commercial rental property is $5,000,000 and her taxable income before the QBI deduction and his modified taxable income) is $1,000,000. What is Taylor's QBI deduction for 2019?

Rebecca and Brad are married and will file jointly. Rebecca earns $300,000 from her single-member LLC a law firm) She reports her business as a sole proprietorship. Wages paid by the law firm amount to $40,000; the law firm has no significant property. Brad is employed as a tax manager by a local CPA firm. Their modified taxable income is $381,40 this is also their taxable income before the deduction for qualified business income). Determine their QBI deduction f 2019.

The QBI deduction percentage matches the 21% tax rate applicable to C corporations.

Code § 199A permits an individual to deduct 25% of the qualified business income generated through a sole proprietorship, a partnership, or an S corporation.

Dawn is the sole shareholder of Thrush Corporation, a C corporation. In the current year, Thrush earned $350,000 and distributed $75,000 to Dawn. Kirk is the sole shareholder of Swallow Corporation, an S corporation. In the current year, Swallow earned $350,000 and distributed $75,000 to Kirk. Contrast the tax treatment of Thrush Corporation and Dawn with the tax treatment of Swallow Corporation and Kirk.

Taylor, a single taxpayer, has taxable income before the QBI deduction of $190,700. A CPA, he operates an accounting practice as a single-member LLC which he reports as a sole proprietorship). During 2019, his proprietorship reports net income of $150,000, W-2 wages of $125,000, and $10,000 of qualified property. What is Taylor's qualified business income deduction?

Tomas owns a sole proprietorship, and Lucy is the sole shareholder of a C corporation. In the current year, both businesses make a net profit of $60,000. Neither business distributes any funds to the owners in the year. For the current year, Tomas must report $60,000 of income on his individual tax return, but Lucy is not required to report any income from the corporation on her individual tax return.

Which of the following self-employed individuals are in a specified service trade or business? circle all that apply)

Which of the following is considered qualified property in the calculation of the deduction for qualified business income § 199A)?

Katherine, the sole shareholder of Penguin Corporation, has the corporation pay her a salary of $300,000 in the current year. The Tax Court has held that $90,000 represents unreasonable compensation. Katherine has avoided double taxation only to the extent of $210,000 the portion of the salary that is considered reasonable compensation).

Under the check-the-box Regulations, a two-owner LLC that fails to elect to be to treated as a corporation will be taxed as a sole proprietorship.

Danielle is a partner in and sales manager for DG Partners, a domestic business that is not a specified service trade or business. During the tax year, she receives guaranteed payments of $250,000 from DG Partners for her services to the partnership as its sales manager. In addition, her distributive share of DG Partners' ordinary income its only item of income or loss) was $175,000. What is Danielle's qualified business income?

Instead of providing the qualified business income deduction to owners of noncorporate businesses, Congress could have applied a special tax rate to the business income to achieve a similar result.

There are three limitations on the qualified business income deduction: an overall limitation based on modified taxable income), another that applies to high income taxpayers, and a third that applies to certain types of service businesses.

Aaron is the sole shareholder and CEO of ABC, Inc., an S corporation that is a qualified trade or business. During the current year, ABC has net income of $325,000 after deducting Aaron's $100,000 salary. In addition to his compensation, ABC pays Aaron dividends of $250,000. What is Aaron's qualified business income?

Jansen, a single taxpayer, owns and operates a restaurant as a sole proprietorship). The business is not a specified services business. In 2019, the business pays $125,000 in W-2 wages, has $187,500 of qualified property, and $437,500 in net income all of which is qualified business income). Jansen has no other items of income or loss and will take the standard deduction. What is Jansen's qualified business income deduction?

Eagle Company, a partnership, had a short-term capital loss of $10,000 during the current year. Aaron, who owns 25% of Eagle, will report $2,500 of Eagle's short-term capital loss on his individual tax return.

How does property used in a qualified trade or business factor into the QBI deduction calculation? What types of property are considered for the QBI deduction?

Which of the following types of income are included in qualified business income QBI)?

In 2019, Sam and Betty, each single, both generate sole proprietor income of $240,000. Sam's income is generated from a wholesale business whereas Betty's is earned from her law practice. Neither has any employees or qualified assets. Both claim the standard deduction and have other income equal to the standard deduction amount.