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# Why is my QBI deduction showing as &lt;10% and not 20% for a covered profession under the first tier income limit? It is off by \$5400!

For an AGI of approximatedly \$47,000 for a self-employed profession included in the QBI deduction by tax code (insurance agent) Turbo Tax is only giving a \$4190 deduction instead of \$9500.  How do I get this fixed????

Employee Tax Expert

## Why is my QBI deduction showing as &lt;10% and not 20% for a covered profession under the first tier income limit? It is off by \$5400!

It is how QBI is calculated if all of your income is self-employment.  The 20% QBI deduction calculation compares the difference between 20% of the QBI (your Schedule C net income, minus any other deductions attributable to your Schedule C income, which encompasses deductions such as the solo 401K deduction, Self-Employed Health Insurance Deduction attributable to the business, and 1/2 of SE tax being deducted on your return) and 20% of your Taxable income  (which encompasses other deductions and income amounts, including your standard or itemized deductions), and whichever amount is lower is the QBI deduction.

I'll make your example \$50,000 to make the math a bit easier to follow.  Your net Schedule C is 50,000, and your SE tax is \$7500 (for arguments sake), so 1/2 of the SE tax is 3750 and subtracting it from that income is 46250, which makes the first half of the formula a QBI deduction of \$9250.  However, you are married filing joint with no other income, so after your 24,000 standard deduction your taxable income is 22250.  Your QBI will be 4450, 20% of your taxable income.

To understand why this is, I will reference pages 43 and 44 of the regulation:  Final Regulations on Section 199A deduction (PDF) (Italics are added to show IRS official procedure on this provision) :

5. Treatment of Other Deductions

Section 199A(c)(1) provides that QBI includes the net amount of qualified items of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer. Commenters requested additional guidance on whether certain items constitute qualified items under this provision. Several commenters suggested that deductions for self-employment tax, self-employed health insurance, and certain other retirement plan contribution deductions should not reduce QBI. One commenter reasoned that qualified retirement plan contributions should not reduce QBI because they should not be treated as being associated with a trade or business, consistent with the treatment when calculating net operating losses under section 172(d)(4)(D). The commenter also suggested that while self-employed health insurance is treated as associated with a trade or business, such expense should likewise not reduce QBI for purposes of simplification in administering the rule. Another commenter suggested that QBI should not be reduced by these expenses because they are personal adjustments. One commenter also requested guidance on whether unreimbursed partnership expenses, the interest expense to acquire partnership and S corporation interests, and state and local taxes reduce QBI.