Tax Year Prior to 2020: QBI Deduction

[Barrygbg]

Hello,

I have a consulting business that does not qualify for the QBI deduction unless we meet the $315k income threshold.  My consulting business produces income less than this amount.  What I would like some input on is does investment income and/or capital gains get added to your income threshold as I sold a second home and had a rather large capital gain that in combination with my consulting income would put me over the threshold.  Thanks for your help.

[KarenL]

It's actually the opposite of what you said in your first sentence.  Your consulting business does qualify for QBI unless you exceed the threshold amount.  Please see below and this link for more details. 

The specified service trade or business (SSTB) classification doesn’t come into play as long as total taxable income is under $157,500 ($315,000 if filing jointly). At higher income levels, the deduction for SSTBs is reduced and in some cases, eliminated.

For the purposes of the QBI deduction, an SSTB is defined as any trade or business that performs services in the fields of:

• Accounting
• Actuarial science
• Athletics
• Consulting
• Health
• Law
• Performing arts
• Financial services
• Brokerage services (including investment management and investing, trading, or dealing in securities, commodities, or partnership interests)

Engineering and architecture were specifically excluded from the SSTB definition as it relates to this new deduction.

[Barrygbg]

Thanks Karen.  Sorry for my convoluted statement but yes I did understand what you say to be the case.  I went to the links and did a few more searches and still cannot figure out if I am above the 315k threshold or not depending on whether interest, dividends and/or capital gains are considered part of our adjusted gross income for purposes of remaining qualified for the QBI.  Thanks!

[KarenL]

No worries.  QBI is based on "net taxable income" from qualified businesses.  Each business activity is calculated separately and it does not include "investment" types of gain/loss such as selling a second home.   Hope that helps to clarify it!

[Barrygbg]

Thanks.  I must be doing something wrong because TT is not giving me that deduction.  Appreciate it.

[huntinad]

Karen, your explanation to the other fellow gives me confidence you can help me as well. 🙂

Is there a way on TTax program to opt out of the QBI deduction, if I qualify, but don't want to take the deduction? (It appears my refund, with my large family, will actually be higher if I can remove the qbi deduction) ... Thanks, 

[JohnB5677]

If you have the Desktop version of Home & Business you can make that change.

1. Go into the FORM's mode
2. On the left side scroll down to Schedule C and select that
3. The first question on the Schedule C is:  Is this activity a qualified trade or business under section 199A
4. Click on NO.

This will opt you out ot QBI

[huntinad]

Thanks! I was able to do that and it worked. 

The way the question is worded Is this activity a qualified trade or business makes me worry that by clicking NO, when it actually is qualified...and I simply don't want the deduction...could make my return appear dishonest to the IRS. Sure don't want to raise any red flags! Thoughts? 🙂

[Barrygbg]

Karen and John,

I never was able to get the QBI deduction into TT last year.  My consulting business was less than $100,000 but in QBI Component Form on line 2, Taxable Income is way above the threshold.  The software definitely included Taxable Interest, Ordinary Dividends and Cap Gains in the QBI threshold.  If wrong, perhaps I should file amended return.  Karen, you felt strongly that this income was not relevant to the threshold when responding last spring, do you feel differently today and John, do you have any thoughts on the matter before i start my 2019 return as I am going to run into the same problem!

Thanks in advance for any help you are able to provide.

[DianeC958]

To qualify for QBI your taxable income has to be below the threshold of $315,000 for Married Filing Joint or $157,500 for all other taxpayers.

The source of the income does not matter it is the amount of taxable income.

If you look at line 11b on your 1040 form and it is below these limits and you have business profits then you qualify to take a deduction for QBI, if your income exceeds these limits then you do not qualify for the deduction.

Link to Facts about the Qualified Business Income Deduction

@Barrygbg

[Barrygbg]

Well, then that is why as that number does exceed.   Thank you very much, appreciate the help.

[ericinmaryland]

As I understand it everyone under their respective limits qualifies.