QBI with multiple businesses

[TripComputer]

Here is a QBI question.

My wife and I have four businesses between us.  Business A is our major source of income and provides me with a W2 and a 2% shareholder health insurance deduction (nearly $10K).  The remaining businesses (B, C, and D) are Schedule C and bring in about $20K per year.

I don't believe Business A qualifies for any QBI deduction because we get paid through W2.  However, businesses B, C, and D do qualify.  

The problem is that the tax software wants to reduce our QBI by the amount of the 2% shareholder health insurance deduction of $10K.  From what I've read, it appears that each business should be considered for QBI separately. 

Does it make sense that a health insurance reimbursement from Business A reduces our QBI from businesses B, C, and D?  (Or should we override this calculation in the software?)

[Anonymous]

business A an S-corp should be included in the QBI calculation.   however only the net business profit or loss on the k-1 qualifies.  wage's don't qualify as QBI   however they are used in QBI calculation.  it becomes even more complicated if the S_corp is a specified service business.       what's more I have notice TT makes errors in computing the proper QBI deduction.   I have called 4 times starting in March.   2 hang ups, spoke to EA and CPA even uploaded my return and there have been no corrections to the app as yet.    

the S-Corp SE health should only reduce the S-corps qbi income on the K-1.  there should have been a code on the k-1 to indicate the amount of the QBI.     it is possible that the S-corp return was not prepared correctly which would make the K-1's incorrect.     

let me give you an example of what I believe is the correct QBI calc  (based on worksheet produce by a  Big 10 University Tax Department)

s corp k-1 QBI $50000

s corp se health on w-2 $10000

s corp net qbi $40000 (a)

wages $300,000 only used in QBI calc if taxable income above amount for filing threshhold

business 2 QBI $100000 (b)

business 3 QBI  (loss) ($25000) (c)

net QBI a+ b +c = $115000

qbi after business 3 loss reallocated to those with profit

S corp $32857

business 2 $82143

scorp qbi 20% of 32857 = 6571

 business 2 qbi 20% of 82142 - 16429

total tentative qbi $23000 which is 20% of the $115,000

if your taxable income was $100000 your actual QBI deduction would be 20% of your taxable income since its lower than your qbi income 

your numbers will work out much different bases on your actual situation

[TripComputer]

Business A reports no distributions on the K-1.  100% of the money from Business A to us (except the 2% health insurance payment) is via W2 (as an employee).  I'm pretty sure that income from that business cannot be used as part of a QBI calculation, according to IRS guidance. 

Does it make sense that a 2% health insurance deduction for Business A would prevent us from getting a QBI deduction in the other three businesses?

[DavidS127]

The IRS rules for reporting shareholder compensation require that you include in shareholder box 1 W-2 income and Form 1120S wages the amount of health insurance premiums paid for “more than 2% shareholders”.  So, the W-2 from your S corp should have your health insurance amount in box 1, and reported as wages for the S corp, and the K-1 to you from the S corp should include the health insurance as Section 199A W-2 wages.  If you haven't done this, you should file corrected W-2 forms and amend your Form 1120S to comply with the IRS rules.  Note that only wages reported to the SSA within 60 days of the deadline are eligible to be counted as wages for QBI purposes.

If the S corp has any income left after deducting your wages, it is QBI income (assuming it otherwise meets the QBI requirements).

When you treat the insurance premiums paid by your S corp as described above (included in W-2, deducted as S corp wages), the health insurance is already deducted from the QBI of the S corp, and doesn't have to be deducted else where.  "Bottom line" is that your health insurance is reported as income on your W-2, and then deducted as self-employed health insurance on Part II of Schedule 1.

If you only had Schedule C businesses, your self-employed health insurance would be deducted from the QBI, which is the IRS rule.  Same rule for the S corp (self-employed health insurance deducted from QBI), it's just that when you report it according to IRS rules, it is already deducted from your S corp income.

For more information, see these IRS websites:

https://www.irs.gov/pub/irs-drop/td-reg-107892-18.pdf

https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-provision-11011-section-199a-qualified-business-i...

https://www.irs.gov/pub/irs-drop/rp-19-11.pdf

https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical...