So far I have been filing my return as Investor and this year I plan to file as Trader WITHOUT 475 (MTM) election.
Is Trading (with TTS alone) is considered Specified service trade or business (SSTB) or one has to file TTS with 475/MTM (to have earned income) to be considered SSTB?
Reason I am asking this question is
When you fill out K1 interview, there is question toward end of Interview if in prior year, did you have any activities on your return that were classified as SSTBs or had income attributable to SSTBs?
How to answer (yes or no) this one if I am filing this years return as Trader/TTS alone this year?
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without the 475(f) election the only difference in reporting, assuming you qualify as a trader, is that expenses go on schedule C rather than not be deductible at all as an investor for federal tax purposes. your security sales are still reported on form 8949/schedule D.
since schedule C produces a loss and capital gains/losses, dividends and interest don't count for QBI but an SSTB includes:
maybe I should have added the schedule C loss would be a QBI loss which could affect your QBI deduction if you have other activities that produced QBI income. The SSTB classification would make a difference if you had other activities producing QBI income that were also SSTB because there is a netting concept in the QBI computation. For example, if you were also a lawyer that income is also SSTB income so this SSTB income would be netted with the SSTB schedule c loss.
475(c)
(2)Security defined
The term “security” means any—
(A)share of stock in a corporation;
(B)partnership or beneficial ownership interest in a widely held or publicly traded partnership or trust;
(C)note, bond, debenture, or other evidence of indebtedness;
(D)interest rate, currency, or equity notional principal contract
IRC 199Aa(C)(3)(B)
(B)Exceptions
The following items shall not be taken into account as a qualified item of income, gain, deduction, or loss:
(i)Any item of short-term capital gain, short-term capital loss, long-term capital gain, or long-term capital loss.
(ii)Any dividend, income equivalent to a dividend, or payment in lieu of dividends described in section 954(c)(1)(G). Any amount described in section 1385(a)(1) shall not be treated as described in this clause.
(iii)Any interest income other than interest income which is properly allocable to a trade or business.
Thanks so simple answer is my situation is NO?
reread my thread. your business is trading securities and that is an SSTB. it doesn't matter whether you have a 475(f) election or not. however, with a 475(f) election some authorities say since the trading gains and losses are now ordinary, they are includable in QBI.
thanks.
What difference it makes if I check yes to this SSTB within K1? Does it increase or decrease Tax liability? or it has to QBI deduction?
that depends on whether you have other sources of QBI. net SSTB income is subject to a phase out if your taxable income is too high
here's an oversimplified example
$200K as taxable income single filing status
$100K of SSTB income
$50K of non SSTB loss
Because of the SSTB income phaseout due to taxable income being over the limit the QBI for the SSTB is only $40K
while the full $50K loss from non SSTB is QBI. they net to a $10K loss so no QBI deduction in the current year and the $10K QBI loss carries over to the next taxable year.
had taxable income been only $100K there would be a $10K QBI deduction
switch it to $100K sstb loss and 50K of non SSTB income with taxable income 200K and you have a QBI loss carryover of $50K
answer the QBI questions as to SSTB correctly. the examples assume all income and losses are non passive because passive losses nay never make it to the QBI computation
if you want to do your own calcs get form 8995/8995A from the iRS website. that's the forms for computing the qbi
https://www.irs.gov/site-index-search?search=8995&field_pup_historical_1=1&field_pup_historical=1
In K1 interview,
There is question, I paid all of my Health Insurance on my own in 2022. Why it is asked in K1? Should I add only Medical insurance premium or Health + dental insurance?
I am filing now for 2022. For 2022 I intend to use TTS which is SSTB activity. Now within K1 Interview it is asking me for Year 2020 or 2021, In 2020/2021 did you have any activities on your return that were classified as SSTBs or had income attributable to SSTBs?
I filed my 2020/2021 return as investor and had NO deductions (Sch A or Sch C). So answer will be NO?
I hope someone could answer my question.
In K 1 interview towards very end it is asking,
Q asked is My taxable income might exceed $170050. What is implication of this number? Which line item of 1040 is taxable income? Is this threshold for QBI deduction?
In 2019 or 2020 or 2021 did you have any activities on your return that were classified as SSTBs or had income attributable to SSTBs?
I intend to file trader (without 475 election) for year 2022. I guess answer to above question is NO. as I did not see any question for year 2022?
if the partnership's business is trading and you are active in its trading by law the income is SSTB.
Thanks
I am just curious, what is tax implications are you are in SSTB business for your K1 income or losses?
Does it has to do with QBI income coming from my K1 limited partnership stake or Overall QBI income? If yes, then you are possibliy eligible for that deduction if you are in SSTB trade/business?
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