I need to remove the QBI deduction for my wife and myself. Neither of us qualify, as I have an accounting related side business and she works in the US for a foreign govt

[DawnC0 · Accepted solution]

Neither working for a foreign government nor having common ownership with a specified trade or business will disqualify you from taking a qualified business income deduction.  Accounting is considered and SSTB.  The SSTB (specified service trade or business) designation reduces or eliminates the 20% Qualified Business Income (QBI) deduction at higher income levels.

The SSTB label, however, is irrelevant if your total taxable income (which includes non-business as well as business income) is less than $157,500 (or $315,000 if you're filing jointly). At these lower income levels, owners of SSTB, as well as non-SSTB businesses, can qualify for the same QBI deduction: 20% of either taxable income (minus capital gains and dividends) or qualified business income, whichever is less.

When you enter the income through a K-1, Schedule C or 1099-DIV, TurboTax will ask you the pertinent questions and only calculate the deduction on the income that qualifies.   Each income section will have its own set of questions which will determine QBI.  You can have some income that qualifies and other income that does not.  TurboTax will only calculate the deduction on income that qualifies for the deduction.  

If your business sells products or provides services in the United States, the profits (or losses) from this business are generally U.S.-based. This includes goods or services you provided in another country as long as you didn’t have a base of operations there.  Your wife's work done in the US is considered US-based work and is not necessarily disqualified from QBI.  Once again, TurboTax will ask these necessary questions and if you have followed the step-by-step guidance, will calculate your deduction on only qualified business income.  

[jallison07]

Thank you for the reply. This makes sense for my side business, but I'm still not certain about my wife's job. Per the IRS website, we have to file her income on form 1040 and payroll tax on Schedule SE. She was never issued a W2 or 1099, and the foreign government does not withhold any payroll taxes. The IRS's website also states that she is not considered "self employed" for federal tax purposes. It seems odd that she would qualify for the QBI deduction.

[jallison07]

to answer my own question, I suppose I need to show her wages under a 1099-MISC?

[DawnC0]

Her income should not generate a QBI deduction.  Have you entered her income yet?  

[jallison07]

I just made edited our return to show her wages under "1099-misc" as "analyst in U.S. for Australian government". That seemed to remove the QBI deduction.

[DawnC0]

That will remove the QBI, but did it generate the SE tax?  If you didn't receive the 1099-MISC you shouldn't enter as a 1099-MISC -- instead, delete that 1099 and enter her SE tax by entering directly on Schedule SE - this way there is no chance of a QBI deduction and the IRS won't be looking for a 1099 that doesn't exist.     Type      sch se        exactly like that into the search bar....and you should get a jump to link that will take you were you need to enter her income.  You can enter the total amount under ''Other SE Non Farm Profit''.   Let me know if that works!!

[DawnC0]

I added a a screenshot to the answer above (can't put pics in comments) but when you click on the Jump to link, select ''Make Adjustments'' and you can add her income.  Enter the total amount in the ''Other SE'' spot and TT will add the SE tax to Form 1040.