Can an LLC (multi-member taxed as a partnership), take the Qualified Business Income Deduction on their net income?

[danielle-51]

I know guaranteed payments are not included for the QBI deduction, but can partners take the QBI deduction on their distributions? Will TurboTax guide you through this correctly? 

[PatriciaV]

No. Per IRS FAQs on Section 199A: "S corporations and partnerships are generally not taxable and cannot take the deduction themselves. However, all S corporations and partnerships report each shareholder's or partner's share of QBI items, W-2 wages, UBIA of qualified property, qualified REIT dividends and qualified PTP income, and whether or not a trade or business is a specified service trade or business (SSTB) on a statement attached to the Schedule K-1 so the shareholders or partners may determine their deduction."

Distributions are generally not taxable income, although the income that generated the distribution may be included in K-1 income that may qualify for QBI.

Yes, if Schedule K-1 is properly completed, includes information on Sec 199A, and entered correctly, TurboTax will include this information when calculating the QBI deduction on your personal 1040 tax return.

For more information, see this TurboTax article: How do I claim the Qualified Business Income Deduction as a Schedule K-1 Recipient?

[danielle-51]

Thank you, Patricia. So when TurboTax asks "Is this Qualified Business Income", do I mark "Yes", and then it will work itself out when each partner files their individual return? It says that almost all businesses in the US qualify. I didn't want to mess things up by checking, "No". Thank you for your time.

[PatriciaV]

Yes, mark the income as QBI if your business qualifies (see below). This topic appears under the Other tab of Federal Taxes. Follow the prompts to answer all related questions and TurboTax will do the rest. Check out the blue "learn more" links for additional help.

In order for income to be eligible for this deduction, there are a few criteria that must be met:

1. The activity must be a "trade or business."
2. The activity must be US-based.
3. The income must not be "wages."

For more info, see this IRS article: Tax Cuts and Jobs Act, Provision 11011 Section 199A - Qualified Business Income Deduction FAQs