Estimated taxes: how is TT calculating the "Business Income Deduction"

[deb46]

I am going through the step-by-step for estimated tax payments. I've entered my best guesses for self-employment income, farm rental income, and interest and dividends. I'm at the screen labeled "Enter 2022 Adjustments" and on the line labeled "Business Income Deduction" TurboTax has prefilled the box with a number (11,134) but I can't get any details on how it was calculated. How was this number determined? Thanks.

[AliciaP1]

That is your Qualified Business Income Deduction (QBI deduction).  TurboTax uses your current year calculated deduction (based on the identified QBI) less any loss carryforwards that would apply assuming 2022 income and expenses are the same as 2021.  It is merely an estimate and, unless you know of a significant change happening to your business income for 2022, you don't need to adjust it.

[deb46]

Our 2022 income is different--no W-2 income and a big chunk from husband doing a consulting job. The QBI number shown for 2022 is quite a bit larger than 2021 and I can't figure out how TT came up with it. Is TT taking 20% of the estimated 2022 self-employed income to get their number? Or maybe what I really need to know is how I should calculate that number--can you give me some details? Thanks.

@AliciaP1 

[AliciaP1]

Yes, but given the significantly larger amount shown, I'm assuming you have QBI losses that are being fully recognized in 2021 to reduce the current year amount.

If there will no longer be W-2 withholdings to offset tax due, I suggest you reduce the QBI deduction to calculate estimated taxes.  Although, you can leave it as is and just increase the amount you pay each quarter by crossing out the printed amount on the 1040 ES and writing in your own amount you will pay.  The whole process is an estimate and can feel like a shot in the dark, but only a tax professional who is reviewing your activity periodically during 2022 could possibly give you a better estimate of your payments needed for the year.

[deb46]

There were no QBI losses in 2021. That's why I can't figure out why TT has increased the deduction so much ($1403 to $11134) for 2022. How is the number calculated? Thanks.

[AliciaP1]

It's not that you had QBI losses in 2021 to take in 2022, it's that your prior year losses were all offset in 2021 and that is why the 2021 number is so low.

If you're uncomfortable with the estimated tax amount TurboTax is calculating, you can reduce the QBI Deduction to zero and continue.

@deb46

[deb46]

There were no prior year losses that were offset in 2021. 

Could someone please explain how the QBI deduction is calculated? Thanks.