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).
