Turbo tax is subtracting self-employment tax deduction from my business income in order to determine my Qualified business income. What IRS doc says to do this?

tvtom · ‎June 1, 2019

The software is subtracting self-employment tax deduction from my business income in order to determine my Qualified business income which in turn lowers my Qualified business income deduction. The 1040 instructions from the IRS do not say to subtract the self-employment tax deduction from business income when determining QBI.

Example results of turbo tax software:

Business income: $21,050

Self-employment tax deduction: -$1,329
QBI deduction: $3,944

From the 1040 instructions, page 34, "Determining Your Qualified Business Income": "It also includes other deductions attributable to the trade or business including, but not limited to, deductible tax on self-employment income"

dmertz · ‎June 1, 2019

Yes, that subtraction is the required per the Final Regulations issued on January 15, 2019. Also required to be subtracted are the deductible portion of self-employment taxes and the deduction for self-employed health insurance. The instructions for Form 1040 were written before the regulations were finalized and are (purposefully?) vague as to what Qualified Business Income is with respect to a sole-proprietor.

https://www.irs.gov/pub/irs-drop/td-reg-107892-18.pdf

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tvtom · ‎June 1, 2019

Thanks for that!

IRS is basically saying, "The self-employment tax deduction you received is attributable to your business and therefore reduces your QBI for this 199A deduction"

From page 44, "Thus, for purposes of section 199A,
deductions such as the deductible portion of the tax on self-employment income under
section 164(f), the self-employed health insurance deduction under section 162(l), and
the deduction for contributions to qualified retirement plans under section 404 are
considered attributable to a trade or business to the extent that the individual’s gross
income from the trade or business is taken into account in calculating the allowable
deduction, on a proportionate basis. "

dmertz · ‎June 1, 2019

Yes, that's it.

Turbo tax is subtracting self-employment tax deduction from my business income in order to determine my Qualified business income. What IRS doc says to do this?

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