QBI calculation

[azerole]

I am confused by the difference in Net income on Schedule C and the QBI amount on form 8995. I have a small tutoring business in addition to my main job, and am reporting income from this business on Schedule C. I expect the QBI amount on form 8995 to be the same as net profit on Schedule C line 31, however it is actually about ~$500 less. What is the reason for this? Is there a way to see how TurboTax calculated the QBI?

[Bsch4477]

Half of your self employment tax is deducted from your net self employment income in the calculation of QBI. 

[azerole]

Oh I see, thanks a lot for pointing this out! I think I have better understanding now, by looking at the QBI deduction smart worksheet, it is indeed taking 1/2 of the self-employment tax and deducting it. Could you also explain the difference between the following lines in the smart worksheet:

5b: Total deduction for 1/2 self employment tax

5c: Deduction for 1/2 SE tax connected to this business

5c is a bit smaller than 5b and I can't figure out why.

[JamesG1]

Do you have more than one activity subject to the Qualified Business Income Deduction?  If so,

• Line 5b is the total deduction on the tax return.
• Line 5c is the deduction allocated to this income activity.

The Qualified Business Income Deduction is computed on IRS form 8995 or IRS form 8995-A Qualified Business Income Deduction. 

In the online versions, you may view or print at Tax Tools / Print Center / Print, save or preview this year's return / Include government and TurboTax worksheets after you have paid for the software.

In the Desktop versions, one can look at the tax return by clicking FORMS, or by viewing the PDF through the Print Center.

As Bsch4477 states, one half of the self-employment tax computed on Schedule SE will is deducted from self-employment income in the calculation of the Qualified Business Income on IRS form 8995 or 8995-A.

[Edited 3/19/2023 | 12:44 pm PST]

@azerole 

[azerole]

Right, @JamesG1 , thanks a lot for a very detailed response! If I switch to the Forms view and look at the QBI deduction smart worksheet, I indeed see that one half of the self-employment tax is what goes on line 5b (

Total deduction for 1/2 self employment tax). However there is another step after that which reduces 5b by ~$40 and this goes on line 5c (Deduction for 1/2 SE tax connected to this business). I've verified that what's actually deducted from net business income in QBI calculation is the amount on 5c. I only have one amount listed in Schedule C, which is my tutoring income, so I'm mot sure what else could be contributing to the QBI computation.

[AliciaP1]

You may have another type of income that is not actually "qualified" and reduces your income for the calculation.

For the purposes of the deduction, QBI is defined as net business income, excluding:

• Income generated outside the United States
• Investment income
• W-2 compensation paid to an S corporation owner
• Guaranteed payments to a partner
• Income from REITs, publicly traded partnerships, and qualified cooperatives (these entities may qualify for a 20% deduction under a different set of rules, the explanation of which is beyond the scope of this FAQ).

See What is the Qualified Business Income (QBI) deduction? for more in-depth information.

@azerole