TurboTax appears to not reduce QBI by half self em...
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Level 1

TurboTax appears to not reduce QBI by half self employment tax. Is this correct?

I could add details, but it comes down to how you interpret some IRS docs.

This page says:  https://www.irs.gov/newsroom/qualified-business-income-deduction
QBI is the net amount of qualified items of income, gain, deduction and loss from any qualified trade or business... Generally this includes, but is not limited to, the deductible part of self-employment tax.  So I guess that means don't subtract it?

However, this intuit thread from 2018 has some rationale from section 199 (which I can't find online):
https://proconnect.intuit.com/community/individual/help/2018-qbi-reduced-by-self-employment-tax-heal...

All deductions attributable to a trade or business should be taken into account for purposes of computing QBI except to the extent provided by section 199A and these regulations. Accordingly, §1.199A-3(b)(1)(vi) provides that, in general, deductions attributable to a trade or business are taken into account for purposes of computing QBI to the extent that the requirements of section 199A and §1.199A-3 are otherwise satisfied. Thus, for purposes of section 199A, deductions such as the deductible portion of the tax on self-employment income under section 164(f),

Thanks!
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Expert Alumni

TurboTax appears to not reduce QBI by half self employment tax. Is this correct?

Yes, the calculation of Qualified Business Income (QBI) includes deducting half the self-employment tax (the amount you get to deduct as an adjustment in Part II of Schedule 1).  This comes into play for self-employment income, including self-employment income from a partnership.

 

The "half of self-employment tax" is a deduction, so it gets subtracted from the net income of the business.  The same is true for a self-employed health insurance deduction, or any deduction that gets passed to you by the business (i.e., the business didn't deduct to arrive at net income) that you deduct on your tax return.

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Level 1

TurboTax appears to not reduce QBI by half self employment tax. Is this correct?

Does that mean TurboTax was wrong (or there was some other parameter I was missing when I did it myself) in that it used the raw self employment income?

 

For example if the self employment profit was $1000, minus $100 for half of the, say, $200 self employment tax.  TurboTax appears to tell me that the QBI is $200 (20% of the $1000).  If it's supposed to be based on 20% of the $900 ($1000-$100) it seems like something is off.

Anonymous
Not applicable

TurboTax appears to not reduce QBI by half self employment tax. Is this correct?

on the schedule C  worksheet go down to QBI Smart Deduction Worksheet to see what is occurring. 1/2 the SE tax should be on line 5c. to reduce sch c net income.   similarly if your income is from a partnership.  

 

Level 1

TurboTax appears to not reduce QBI by half self employment tax. Is this correct?

I decided not to buy turbotax since I didn't really trust what it was doing, so I can't see those lines, just the 1040 summary.  

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