Form 8995 Line 1 and Form 8995-A Line 2 QBI calculation incorrect

[FuzzyDice]

TurboTax incorrectly calculates Form 8995, Line 1 (or 8995-A, Line 2) QBI when a taxpayer has both Schedule C and Schedule F income but only the Schedule C generates self-employment (SE) tax due to Schedule F income from Conservation Reserve Program (CRP) for a taxpayer who receives Social Security benefits. Specifically, the software over-allocates the "one-half of self-employment tax" deduction, reducing QBI on both businesses by a combined total amount that is more than Schedule SE, Line 13.

Specific conditions:

1. Taxpayer receives Social Security benefits
2. Schedule F net income (Schedule SE Line 1a) minus Conservation Reserve Program (CRP) income (Schedule SE Line 1b) is 0 or less.
AND
3. Schedule C net income (Schedule SE line 2) is large enough so that Schedule SE line 3 is greater than 0, therefore producing an SE tax.

Condition 1 & 2 alone have a correct Form 8995 / 8995-A QBI with no reduction to net self-employment income from "one-half of self-employment tax" given there is no SE tax.

But, add in a Schedule C with sufficient net income to produce an SE tax and the QBI is calculated incorrectly with a total combined reduction across both self-employment businesses that is more than Schedule SE, Line 13.

Note: TaxslayerPro and H&R Block handle this scenario correctly with the combined total reduction across both self-employment businesses equal to Schedule SE, Line 13.

[DawnC]

I was unable to reproduce this scenario, but would like to take a deeper look at this.  So, I need a diagnostic file, which is a copy of your tax return that has all of your personal information removed.  You can send one to us by following the directions below:

TurboTax Online:
 

1. Sign into your online account.
2. Locate the Tax Tools on the left-hand side of the screen.
3. A drop-down will appear. Select Tools 
4. On the pop-up screen, click on “Share my file with agent.”
5. This will generate a message that a diagnostic file gets sanitized and transmitted to us.
6. Please provide the Token Number that was generated in your reply.   Put spaces in between the numbers or provide a screen shot so the filter doesn't remove the number as phone number.

TurboTax Desktop/Download Versions:

1. Open your return.
2. Click the Online tab in the black bar across the top of TurboTax and select Send Tax File to Agent *
3. This will generate a message that a diagnostic copy will be created.  Click on OK and the tax file will be sanitized and transmitted to us.
4. Please provide the Token Number that was generated in the response.

* If using a MAC, go to the menu at the top of the screen, select Help, then, Send Tax File to Agent.

[FuzzyDice]

Tokens
2/25/26: 1 1 7 2 0 0 3 9 9 dash 8 9 9 4 3 3 7 2
3/9/26: 1 1 7 2 0 0 3 9 9 dash 8 0 6 6 9 3 6 8

The 2/25 token was the full tax return earlier. Later I manually updated the Forms View, Schedule F, Qualified Business Income Deduction Smart Worksheet, Line E5c 'Deduction for 1/2 S.E. tax connected to this business' to 0 before filing since the corresponding Schedule C, Allocable Deductions Smart Worksheet, Line C 'Deduction for 1/2 S.E. tax connected to this business' was correctly equal to Schedule SE Line 13.

The 3/9 token has simple tax return entries for only the original scenario (SSA-1099, Sch F with CRP income greater than or equal to net income, Sch C, Sch SE produces SE tax) necessary to reproduce the problem with Forms View, Schedule F, Qualified Business Income Deduction Smart Worksheet, Line E5c 'Deduction for 1/2 S.E. tax connected to this business'.

[DawnC]

Thank you for the token files.   Can you please let me know if there are any state returns attached to those token files?  

[FuzzyDice]

No

[DawnC]

Thank you!

[DawnC · Accepted solution]

I do see that the Schedule F is not adjusting the amount for Line 4b and the QBI adjustments.   For now, go to Forms Mode and scroll down to your Schedule F.    Then scroll down the Schedule F until you see the Qualified Business Income Deduction Smart Worksheet (it is about half-way down the page) area, and delete the line 5c amount and replace it with a zero (0.) and that should correct the QBI on Form 1040.   

[FuzzyDice]

Thank you for confirmation of the bug and workaround.  The workaround that you suggest is exactly what I did before filing earlier.