Qualified Business Income Dedution Smart Worksheet

[DonnaS1947]

I'm doing the smart worksheet for the qualified business income deduction.  On line E1 it shows my rental income.  Then on Line E2 there is an adjustment to the qualified business income which increases the overall qualified business income by a substantial amount.  I cannot see where this adjustment is calculated.  Would someone please explain to me how this number is derived?  Or point me to a worksheet that shows the calculation?

Thanks,

Donna

[DavidS127]

In general, TurboTax is making an adjustment on line E-2 for some component of your rental income that is not qualified for QBI.  Because your adjustment increases the rental income amount for QBI, one of the deductions used to calculate the rental income amount in E-1 (e.g., W-2 wages or a capital loss) is not eligible for QBI and is being "added back" here on line E-2..

If you right click on the E-2 amount and choose "Data Source" you may get a specific reference to the source of the form in the pop-up window, or you may get a text explanation that starts with:

"Enter adjustments for items of business income/expense that are subject to passive/at-risk limits but not qualified business income items under Section 199A." 

If you right-click the E-2 amount and choose "About Adjustments to QBI" you get an explanation and an example for E-2 adjustments, including this:

"If specific items of income or deduction from this business need to be excluded from qualified business income, the net adjustment may be entered on lines E2, F2, or G2, as applicable. The starting value for ordinary gain/(loss) and Section 1231 gain/(loss) comes from the tables above lines F1 and G1. If the ordinary or 1231 component of any of these asset sales is incorrect for purposes of the QBI deduction, the value may be changed."

[DonnaS1947]

Hi,

Sorry I didn't see this sooner but thanks for responding.  Why would Turbo Tax make an adjustment that INCREASES my QBI?  The result was a much larger QBI deduction.   I tried everything I could and never found the source of the adjustment Turbo Tax made.  I just zeroed it out. 

[DavidS127]

If you had a loss or expense of some sort within your rental income that wasn't eligible for QBI treatment, eliminating that loss would increase your QBI.  TurboTax would have used some amount entered elsewhere on your tax return to populate this field, so it should be correct and is covered by the TurboTax accuracy guarantee.

[Plant1]

I have business income with no expenses, so no deductions - my net income is my gross income.  Like Donna, my E2 positive adjustment is almost double my income.  Your explanation does not work for my circumstance.  Any other suggestions as to why?

[ThomasM125]

The adjustment to schedule E income would normally be an entry made by the taxpayer in a screen entitled Let's cover some uncommon situations, where you would manually enter an adjustment to QBI income. It looks like this in TurboTax:

You see it after you are done entering your rental income and expenses, when you see the QBI questions. The number entered as Adjustments to business income appears on the QBI deductions smart worksheet in line E-2.

[Plant1]

I should have been clear.  Mine is strictly schedule C income from 1099NEC.  I have no expenses against that income.  I do, however, also have W-2 income from my regular job.  I did not check anything in the area you are suggesting below.  Using round numbers, my 1099NEC income is $1,500 but QBI is $2,800.  And as I stated, my net income is $1,500 because I didn't have expenses against the income.

I don't understand how I can get $2,800 in QBI. 

I also think TurboTax should show how the $2,800 is calculated so it is completely clear and can be corrected (or overridden if necessary.)

[Irene2805]

Line E of the Qualified Business Income Deduction Smart Worksheet allows for adjustments to the QBI from the ongoing operation of this business. If for some reason a portion of the income or expense of this business is not eligible for the QBI deduction, any necessary adjustments would be entered on line E2.

Unless an amount was entered on the screen asking for adjustments to business income, I don't see how a QBI deduction of $2,800 could be calculated on $1,500 of income.

The Qualified Business Income Deduction Smart Worksheet  is located at bottom of the Schedule C.  You can preview the worksheet using these steps:

TurboTax CD/Download

1. Go into Forms Mode by clicking on the Forms icon in the top right of the blue bar. 
2. In the Forms in My Return list on the left, click on Schedule C (business name).
3. It will appear on the screen to the right.  You can delete the entry on line E2 if you wish.
4. Scroll down to the worksheet, which is below line 48.
5. To return to the interview, click on the Step-By-Step icon in the top right of the blue bar.  

TurboTax Online

1. While in your return, click Tax Tools (in the black bar on the left of your screen) and then click select Print Center.
2. Click Print, save or preview this year's return.
3. Mark he radio button Include government and TurboTax worksheets (optional).
4. Click the View or Print forms box.

@Plant1