MFJ multiple sole proprietorships

[klc23]

I have a day job (W2 - $80k) and run a sole proprietorship. My wife also runs a sole proprietorship. We fill out two separate schedule Cs, one for each dba, and my business has been accumulating a carryforward loss for the past few years (now approximately a total of $20k), while hers has shown net profits for the past few years (approximately $13k per year). The TT software combines our businesses when calculating any QBI deduction, which causes my carryforward losses to eliminate the QBI deduction from her pass through business gains, but does not apply the losses against her profits. It seems strange that the combination of the two businesses only work against us. Why do my losses only count against the QBI deduction for her business, but not when it comes to offsetting the profit? I cannot find anything on this subject after many hours of research from numerous sources.

[Mike9241 · Accepted solution]

The QBI loss is only for purposes of the QBI deduction. there is no effect of the QBi on the profit or loss.

Your current year loss would reduce current taxable income 

the QBI deduction is a completely separate calculation

example you have a $5K current year business loss and $15K of QBI loss carryover from prior years 

your wife has $13K of business income.  your current year loss of $5K would be allowed to offset her $13K of income for taxable income purposes. look at schedule 1 line 3

however, for QBI purposes the full $20K of QBI carryover would be used to offset her $13K of QBI income leaving a QBI loss carryover to 2024 of $7K. 

further example: should you lose $6K in 2024 while she has $15K of income. for income tax purposes, this will add a net of $9k to taxable income but for QBI purposes the $15K will be offset by your $6K of current year losses plus the $7K carryover leaving $2K of QBI.