QBI Calculation of 1/2 Self-Employment Tax Deducti...
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Level 6

QBI Calculation of 1/2 Self-Employment Tax Deduction (possible incorrect calculation)

Tax Situation Description

 

My wife (essentially retired) still has a small Schedule C business with net profit of about 2.5K.  She pays self-employment tax of about $350.  We do not pay regular income tax on this income, as she takes a self-employed health insurance deduction which effectively wipes out the regular income tax liability associated with the business.  As a result, she does not qualify for a QBI deduction on her business.  This appears to be correct.

 

However, we are also invested in a number of private limited partnerships, some of which have a profit for QBI purposes, and some which have a loss.  As an example, one of the partnerships has income of $8,500, all QBI eligible, with no associated self-employment income.  However, the software is deducting 1/2 self-employment tax of $175 (the amount associated with the unrelated Schedule C business) from the QBI eligible income from this partnership.  It is also doing this with two of the other limited partnerships that show a net profit, for a total deduction of $525 (roughly).  This appears to be an error, and I don't see a way to change this through the interview process.  It can be changed (not overriden, but changed by user input) in Forms mode. 

 

Details:

 

The calculation is shown in Section D2 of the K-1 worksheet, line 5 for self-employment  deductions connected to this business.  Line 5a, self employed earnings from QBI are zero, which is correct.  Line 5c, Total Deduction for 1/2 Self-Employment Tax shows $175, which is correct.  However, Line 5d Deduction for 1/2 Self-Employment Tax Connected to this business shows $175, clearly incorrect.  It is possible to change this number (it is a user-input field), but again, there appears to be no way to change this through the interview process.

 

This deduction then carries over to reduce the QBI component for the business.

 

Unfortunately, I had already e-filed before finding this issue.  (By the way, I went back to 2018 and found the same issue). 

 

2 Replies
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Expert Alumni

QBI Calculation of 1/2 Self-Employment Tax Deduction (possible incorrect calculation)

It would be helpful to have a TurboTax ".tax2019" file that is experiencing this issue.  You can send us a “diagnostic” file that has your “numbers” but not your personal information.  If you would like to do this, here are the instructions:

 

For TurboTax Online, click the dropdown arrow next to Tax Tools on the left menu panel, then click Tools under that.  On the Tools Center pop-up, select Share my file with Agent.  When you confirm the request, you will get a box with a token number.   Reply with the token number and I’ll be able to open a TurboTax tax return with your numbers but not your personal information.  That may help diagnose the issue.

 

For TurboTax Download/CD, on your menu bar at the very top, click “Online” and then “Send Tax File to Agent”.  When you click to send, you will get a pop-up with the token number.  Reply with the token number and I’ll be able to open a TurboTax tax return with your numbers but not your personal information.

 

If I have your diagnostic file in time, I will respond to you on 7/16/2020.

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Expert Alumni

QBI Calculation of 1/2 Self-Employment Tax Deduction (possible incorrect calculation)

I tried to replicate your error in my TurboTax Download CD software, but could not.  I added a Schedule C and some limited partnerships, but none of the partnerships used the self-employment income or half the SE tax from the Schedule C business.  But, I don't have the specifics for your partnership K-1s (or the other entries in your tax return), so I can't be sure I exactly replicated your data.

 

Somehow your file is "linking" your K-1 Section D2 line 5 to the Schedule C self-employment income or SE tax, but I can't find how that is happening.  The Line 5d is attempting to calculate the QBI portion of the deductible SE tax, but should be zero if there is no box 14 code A amount for the partnership K-1.

 

I recommend that you contact Customer Support and provide them with a diagnostic file to find out more.

 

[Edited 7/16/2020| 10:20 am PDT]

@Zbucklyo

 

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