SSTB effect on QBI deduction and losses carry forward?

[sam992116]

My own business is capital market trading in my own account as I don’t trade either for others or provides services in this field.

Q: Most of examples shown by TT is for service part, such as lawyers, accountants etc. My assumption is this trading is SSTB activity, even though I don't provide any services?

Q: Does it matter how this trade or is this trading without 475 election effect answer to  SSTB?

I do own partnerships K1 entities. These are public traded pipeline partnerships and I am a passive investor so there is no overlap in terms of business.

Q: Where on Tax return one has to check YES  regarding one’s  business activity is labelled as SSTB?

I have seen at 2 places.

One is on Sch C, once you fill out business expenses interview then TT ask you if you does this business receive income from specified services (SSTB)?

2nd place is I have seen it on K1 interview almost towards end.

Is there any other place either TurboTax Interview or Forms?  or do I have click Yes to SSTB every where  like in Sch C and each and every k1 interview or Sch C alone is fine?

[Mike9241 · Accepted solution]

Q: Most of examples shown by TT is for service part, such as lawyers, accountants etc. My assumption is this trading is SSTB activity, even though I don't provide any services?

for purposes of QBI deduction under reg 1.199A-5

an SSTB

trading in securities, commodities, or partnership interests 

dealing  - regularly purchasing securities, commodities, or partnership interests from selling such to customers or regularly offering to enter into, assume, offset, assign, or otherwise terminate such positions with customers

financial services other than banking

Q: Does it matter how this trade or is this trading without 475 election effect answer to  SSTB?

I do own partnerships K1 entities. These are public traded pipeline partnerships and I am a passive investor so there is no overlap in terms of business.

yes it matters. capital gains  are specifically excluded from QBI. see below. with 475 the election trading gains/losses are ordinary so included in QBI

Q: Where on Tax return one has to check YES  regarding one’s  business activity is labelled as SSTB?

when you come to the QBI section in schedule C there should be a checkbox for SSTB

only check SSTB in the QBI section for those activities that are SSTB

each PTP stands on its own so it's possible some of yours could be SSTBs 

the PTP would probably include a statement in supplemental info if it was.

https://www.law.cornell.edu/cfr/text/26/1.199A-5 

(B)Exceptions (NOT QBI)
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.
(iv)Any item of gain or loss described in subparagraph (C) or (D) of section 954(c)(1) (applied by substituting “qualified trade or business” for “controlled foreign corporation”).
(v)Any item of income, gain, deduction, or loss taken into account under section 954(c)(1)(F) (determined without regard to clause (ii) thereof and other than items attributable to notional principal contracts entered into in transactions qualifying under section 1221(a)(7)).
(vi)Any amount received from an annuity which is not received in connection with the trade or business.
(vii)Any item of deduction or loss properly allocable to an amount described in any of the preceding clauses.

[sam992116]

@Mike9241 @tagteam 

Thanks It was helpful.

Regarding Partnership K1s

Supplemental info has lots of Codes (mostly 20 something) and I read description of each code  and none of the say SSTB or trading.

Q: For  Business activity within K1s to be labelled as SSTB, Is there a specific Code number or Box number in Supplemental info?

I have already checked Yes to SSTB in QBI section within Sch C. Now in K1 interview there are 2 questions.

First question is for K1 entity's business activity

Q: Does K1 Entity Name receive income for Specified services (same examples shown as in sch C)?

I answered NO, as I don't see anywhere on K1.

2nd Question is for my own activities

Q: In 2022, did you have any activities on your return that were classified as SSTB or had income attributable to SSTBs?  It is NOT asking for current or 2023 tax year.

[Mike9241]

it's possible that a PTP Could be a SSTB. i have not seen anything anywhere in the full k-1 package that says anything about SSTB but there are many PTPs and I've only seen a few of them. I would take the position that if they say nothing about it anywhere in the full K-1 package they're not. 

also know that there are taxable income limitations based on your filing status. too high and no QBI deduction 

[sam992116]

@Mike9241 

Thank you for your input, really appreciate it.

QBI:

Q: QBI income and deduction and limitations/phase outs are calculated on Form 8995 or is there some other place as well?

Q:  Is this line 16 of Form 8995 which is total QBI from all sources?

Q: Total QBI deduction, is this line 39 Part 4 of form 8995?

Q: What gets to carry forward? I assume it is only QBI deduction which I was not able to deduct this year?

Q: where do I see information regarding Carry forward deduction amount? within QBI or carry over worksheet? QBI form/8995 has several places for carry forward deduction, line 40 for PTP loss and Sch C section of 8995?

[Mike9241]

unusable QBI deductions do not carry forward. it's only qbi losses form separate activitie that gave not been used to reduce the QBI income

for example schedule c QBI $50,000.  if it's not a SSTB tentative QBI would be $10,000 (subject to complete phase out if taxable income is too high) if SSTB and taxable income is too high that $10,000 is subject to phase-out so you may only have tentative QBI of $6,000   that too is subject to elimination if taxable income too high

no c/o in either xase

PTP has QBI loss $20,000 this would be a QBI carryover

QBI computed on form 8995/8995-A

[sam992116]

Thanks @Mike9241 

PTP losses one can carry over as long one owns the public traded partnership. They end once you sold/end that partnership ownership.

So same concept apply to PTP's QBI  carry over loss. Once you sell them all of these losses also end/released?

Is there particular section or Form Number within tax file where  one can see these PTP QBI carry over losses are released once you sell these PTP?

[Mike9241]

only with desktop because that has forms mode, and you would look at each k-1 in a section it will show QBI 

prior and current year QBI loss carryover. the same is true for schedule c and the worksheets for other activities

one thing to do if you dispose of a PTP if there are QBI losses you can include as a separate income item in the QBI section for the current year any section 751 income (basically deprecition recapture - not all PTP's have this but in 2023 it wa reported on line 20AB

PTP QBI computations for those that are not SSTBs are a separate calculation from your schedule C. 

[sam992116]

Thanks @Mike9241 

I have Desktop version.

I checked carefully all K1 PTP which I have sold. It is NOT carrying forward anything to 2024. Regular income, AMT income section and QBI section of K1.

Now I looked at QBI Deduction Summary. It is below form 8995.

Line 13- Allowed REIT/PTP income  -- $ -10000  (made up number)

Line 14  -Carry over from last year -   $ -2000

Line 17 - Disallowed PTP loss -  $-12000

Line 25 - Total QBI deduction  -- 0

So I assume these losses have been used up and released as for K1 are concerned? All of these calculation for ZERO deduction.

Carry Over WorkSheet is only showing what was carried over to 2023. It is Not showing me what is being carried over to 2024?

[sam992116]

@Mike9241 

one thing to do if you dispose of a PTP if there are QBI losses you can include as a separate income item in the QBI section for the current year any section 751 income (basically deprecition recapture - not all PTP's have this but in 2023 it wa reported on line 20AB

PTP QBI computations for those that are not SSTBs are a separate calculation from your schedule C.

Could you please care to elaborate this?

I have one K1 PTP where there is 20 AB - It says Section 751 gain =  $11100

But this amount is same as Ordinary Income in Sales Section (column 7)

Where to enter this? In From 8995 or worksheet, which line item? How as software is NOT letting me to add or change anything?

[sam992116]

@Mike9241Could you please help me clarify concept of Sch C loss and its effect on QBI?

I experimented with software with either Yes or No question to SSTB

I am trying to understand concept of Sch Expenses and their effect on QBI. I think it depends how to answer to question SSTB in Sch.

I don’t have income on Sch C, only expense which are losses.

If I answer YES to SSTB (just for concept)

Q: Does Sch  C loss, produces a SSTB loss so in the it reduces QBI by that amount? Lets say I have Sch C loss of $1000 so it will reduces QBI by this amount?

Form 8995 – with Yes answer to SSTB

Q 11 : Reduction to QBI  = $1000

Q 14:  QBI  = 0    (QBI component worksheet)

And it is also showing  0 or nothing  as Net QBI  (QBI deduction Summary)

It is now showing  0 or nothing as carry over losses worksheet.

If I answer No to SSTB question

Form 8995 – with NO answer to SSTB

It is NOT showing (it is blank)  any reduction to QBI income (question 11 in QBI worksheet)

It is showing  $- 1000 QBI income (Item 14 in QBI component worksheet)

And it is also showing -1000 as Net QBI  (QBI deduction Summary)

It is now showing $-1000 as carry over losses

I am assuming I should answer yes to SSTB in Sch C and else where in K1s.

Since I don’t have any QBI income so there is no 199A or QBI deduction for me this year.

Q: Is this Sch C Loss produces a QBI deduction for me or QBI loss for me as you have already told earlier unusable deduction don’t carryfoward but QBI losses are carry forward?

Q: Should this Sch C expenses/loss be carry over for future years as in Carry over Worksheet?

[Mike9241]

for SSTBs you check yes for non SSTBs you leave that blank.

the thing with SSTBs is you have to look at the QBI component worksheet for schedule C because there is a special computation to compute the QBI for SSTBs (it differs from the QBI computation for non-SSTBs). in any event QBI losses (whether SSTB or not) will only reduce QBI income to zero. there cannot be a negative QBI amount on line 13 of 1040

as far as i can tell Turbotax correctly computes the QBI deduction or QBI loss carryforward if proper entries are made.  QBI income or loss it's not the schedule c income or loss but at most 20% of the income or loss. then because you have an SSTB or taxable income is too high the QBI income loss c/o could even be zero. 

I don’t have income on Sch C, only expense which are losses.

If I answer YES to SSTB (just for concept)  yes you do

Q: Does Sch  C loss, produces a SSTB loss so in the it reduces QBI by that amount? Lets say I have Sch C loss of $1000 so it will reduces QBI by this amount? that depends on your taxable income (including capital gains and qualified dividends) because if it's too high your schedule C loss produces no QBI loss (due to it being an SSTB). if it isn't and you have QBI income from other trades or business that QBI loss from schedule C will offset it. Any excess loss becomes a carryover   Also, income from MLPs that are not SSTBs and certain REIT dividends (line 5 of 1099- DIV) generate a 20% QBI deduction. this amount combined with any other qbi deduction can't exceed 20% of taxable income after reduction for long-term capital gains and qualified dividends

you really need to study the 8995/8995-A and the QBI component worksheets for each trade or business. 

It's complicated tax law 

[sam992116]

Thanks @Mike9241 @tagteam 

I think I am all set now. Thanks again for your time and input. It was quite helpful.