Why is a negative number for self employment loss on Schedule K-1 Form, Box 14 lowering my Federal Refund total, when a positive number (earnings) goes up?

[azimpfer]

When I played around with the numbers to see what would happen, negative numbers (i.e. net loss) lowered my refund total even though I shouldn't have to pay self employment tax on a loss. When I put in a positive number (i.e. net earnings) my tax refund total actually went up. This seems backwards to me unless I'm missing something.

[HelenC12]

If your refund goes up when you enter more profit but your refund goes down when you enter less profit, it's probably because of the Qualified Business Income (QBI) deduction.

• You get a QBI deduction of 20% of profits. As your profit increases, your QBI goes up. As your profit decreases, the QBI deduction goes down, thus raising your taxes.

Here is an additional resource you may find helpful: 

Surprised that you're getting the Qualified Business Income (QBI) deduction? Here's what might be going on.

[azimpfer]

Hi @HelenC12, thank you for the response!

I wanted to provide a bit more detail to make sure I'm understanding how QBI could effect my tax return. If I completely remove my Schedule K-1 from the income list in Turbo Tax, let's just say it tells me my refund will be $3,500. Then, once I input my Schedule K-1 with a self-employment loss (for example, -$2,000) on Box 14, the tax refund estimate drops down to $2,500. Does this sound like the correct end result? Perhaps this loss is taking away self employment profits from other business / income items? It still sounds weird that I would record a loss for the business and have tax refund money taken away.

I appreciate your thoughts and insight on this topic!

[HelenC12]

Think of the 20% QBI deduction like you do the real estate tax deduction. If you itemize and you enter real estate taxes, you're refund would generally increase because you're deducting the real estate taxes from your income. The QBI is a deduction and works the same way.

With the QBI deduction, most self-employed taxpayers and small business owners can exclude up to 20% of their qualified business income from federal income tax (but not self-employment tax) whether they itemize or not. Click here to review the TurboTax What is the Qualified Business Income (QBI) deduction? FAQ again.