topic QBI Incorrectly calculates reductions to K-1 Line 1 based on Statement A number (2020 Taxes) in Deductions & credits

QBI Incorrectly calculates reductions to K-1 Line 1 based on Statement A number (2020 Taxes)

JeffJordan — Wed, 31 Mar 2021 15:10:16 GMT

My 2020 Partnership K-1 show a total income figure on Line 1. I will make it up - $200,000. That is all self employment income from the partnership. The K-1 Statement A for the QBI is reduced by Health Insurance and 401(k) contributions so Statement A says QBI is $200,000 - $20,000 (401k) - $20,000 (health insurance) = $160,000. The problem is the TurboTax program automatically reduces the Statement A QBI figure a second time for 401k contribution - and it uses the wrong amount because it is calculating a percentage of 160,000/200,000 = 80% and reducing the $160,000 by 80% of the 401k instead of 100%. Applies the same 80% to the 1/2 self employment tax reduction so it is wrong too. And before you say just use the Line 1 number instead of the Statement A number, there is no place to reduce the Line 1 number by the health insurance premiums so percentage errors still exist and then filing will not match K-1.

Re: QBI Incorrectly calculates reductions to K-1 Line 1 based on Statement A number (2020 Taxes)

DanielV01 — Mon, 05 Apr 2021 22:37:48 GMT

I'll add to your hypothetical so I can get the number you are driving at. Let's say that for your hypothetical your SE tax on the 200,000 is 20,000 (It's actually about 22,875, but 20,000 is a nice number). 1/2 of that is 10,000, so that takes your 200,000 Partnership income down to 150,000. You would think that your QBI would be 30,000, but it might not be. If your income is all from the partnership, then the QBI deduction is further reduced (the lower of 20% of QBI and 20% of taxable income). So if you are filing as single (which we'll revisit), you would have to deduct yet another 12,400 from your figure, bringing the calculation to 137600. 20% of that would be 27520. If you are filing as either Head of Household, Married Filing Joint, or are claiming Itemized Deductions, your QBI deduction would be even less.

But there's a further caveat. If your income is up at that range, and you are filing as single, you are in the QBI "phase-out" range, which is a very complicated formula. And if you are in that phase-out range, and your business is an SSTB, then the reduction is even greater. For more details on this whole situation, please see this Help Article: What is the Qualified Business Income (QBI) deduct..., and click on the embedded link in the article: How is the deduction calculated? (Not for the faint of heart!)

Point being, that while it is possible that the program might be calculating your QBI wrong, there is a real good chance that the calculations are correct and you are unaware of a few factors that could be lowering it, or entries that may need to be made to bring it back up. It can be complicated, but if you provide a little more detail, we may be able to come to a solution together.

Re: QBI Incorrectly calculates reductions to K-1 Line 1 based on Statement A number (2020 Taxes)

JeffJordan — Wed, 07 Apr 2021 15:03:30 GMT

Thanks Daniel, I have no other business related issues (or income limits issues) on QBI. The issue is that TurboTax is automatically reducing the QBI by a wrong amount . Notably, if I use my full Line 1 "business income" on Statement A, TurboTax does not reduce that number for health insurance premiums. It only reduces it for 1/2 SEP and 401k contribution amounts, so it is still wrong. If I manually reduce the Statement A number to take out health insurance, then the program thinks that only the "Statement A number/Line 1 number" is QBI so it creates a percentage reduction of the SEP and 401K figures before subtracting them. Perhaps the issue is my K-1 which already has health insurance and 401k removed from the Statement A number - but again, if Statement A equaled Line 1, then there is no reduction for medical. So the program will not correctly calculate QBI and unless I override numbers which means no electronic filing.