So, I am trying to do some projections on how much IRA to convert to Roth and, at some point, by adding another increment of Roth dollar conversion, it is lowering my QBI deduction drastically and when I look at the Turbo Tax forms, something doesn’t make sense to me. Because the “super income”, including capital gains as I recall, if for 2020 and married filing jointly, would exceed 326,600, by about 20k, the QBI deduction is reduced by a “percentage” that represents the excess of that super income over its threshold compared to $100,000. In other words, coincidentally it is about 20k divided by 100k, or about 20% (which is not to be confused with the exact 20% factor that is used elsewhere in the usual QBI calculation before any reductions). I get that, but it seems like TurboTax applies that same reduction percentage twice, as now explained. For example, my QBI income (the lesser of two numbers) is about 150k generating a potential QBI deduction of about $30k (20%), if not reduced. So, in part 1 of schedule A of form 8995A, line 10 knocks my 150k income down to about 120k in row 11 using that percentage computed in row 10. Form 8995A Part I then equates that approx. 120k shown in its row 2 to an approx. 24k tentative QBI deduction in row 3, multiplying by exactly 20%. So far, I understand. From there, that 24k result is found on row 19 of a QBI Component worksheet and, in the next few rows, it is reduced, on row 25, by a few hundred dollars due to 2.5% of UBIA. I’ll still call that tentative result to be about 24k. Then, on the QBI component worksheet, in rows 25 thru 27 (for the 2020 version) the exact same excess calculation is made, with the same almost 20% result, computed in its row 6, and that 24k is reduced by the exact same percentage, about 20% noted above, yielding a final result of about 19.2k. So, it seems to me the deduction that could have been 30k is being factored down by that excess factor twice, to 19.2k, what a mathematician might called “squared”. In other words, if that percentage would be exactly, rather than approximately. 20%, the final result would be the original result multiplied by 0.8 squared, or 64% of it. I know I have left out some of the intermediate details in this complex calculation, but both those reductions are seen on rows that compute the exact same “percentage” excess of the super income compared to 326,600 and then compare that to $100,000. I think I am representing that exactly as it reads. In summary, I understand the reduction if done once, but why is it seemingly being done twice? Is it possible it is messed up only in the 2020 version because they haven’t really finished the 2020 version yet? I don’t think this changed fundamentally between 2019 and 2020, but who knows what their yearly upgrade process might be. Several of their CPAs swear that, even though some of the forms aren’t finished for 2020, the calculations are nonetheless correct. Please help me! Happy new year all.
