Why is my QBI limited?

by TurboTax•106• Updated 1 month ago

Sometimes a K-1 reports Qualified Business Income (QBI) info not only for activities of that partnership, S corporations, or trusts, but also for QBI passed to that partnership from another partnership, S corporation, or trust.

If your K-1 reports Section 199A information for both the main entity and a pass-through entity, you must:

Enter your K-1 as if it were two (or more) separate K-1s.
- One K-1 will report only the box amounts for the main entity, and a separate K-1 is needed for each pass-through entity.
Contact the preparer of the K-1 if it's unclear how to split the amounts from the information you have.

To enter this information into TurboTax, select from the options listed, and follow the instructions provided.

To enter separate K-1s for the main and pass-through entities

Open or continue your return.
After you’ve reported the info from the main entity, select Add another K-1 from the K-1 Summary screen.
Work through the interview. Once you've entered your specific box/code, on the screen We see you have Section 199A income, select The income comes from another business.
Enter the name and EIN of the pass-through entity on the next screen and select Continue.

Keep in mind: Even when there’s no Section 199A information, these situations require a separate K-1 in TurboTax for each type of activity. When K-1s such as these also have a Section 199A Statement with QBI information, the Section 199A Statement amounts must be split within those separate K-1s.

If your business is classified as a Specified Services Trade or Business (SSTB) or you sold to a SSTB business you co-own

The SSTB designation reduces or eliminates the 20% Qualified Business Income (QBI) deduction at higher income levels. Once your 2024 taxable income exceeds the threshold of $191,950 for Single tax filers and $383,900 for Married Filing Jointly, the IRS limits the QBI deduction for an SSTB. To properly calculate your QBI deduction, TurboTax asks if your business receives income from specified services.

Even if your K-1 entity doesn’t generate specified services income, if it makes money from selling to a SSTB that's at least 50% co-owned by your K-1 entity, you’ll need to report that amount. Once you tell TurboTax your K-1 entity has sales to a co-owned SSTB, you’ll be directed to either identify the percentage of your income related to sales to that co-owned SSTB, or allocate specific amounts of income from that co-owned SSTB.

If you're taking an itemized deduction for expenses related to your K-1 business

If you're itemizing deductions and taking an itemized deduction for expenses related to your K-1 business (for example, you're deducting charitable contributions made in the name of your business), you must subtract those deductions from your QBI. If you're taking the standard deduction, this doesn’t apply to you.

To enter these amounts in TurboTax:

Open or continue your return.
On the Let’s check for some uncommon adjustments screen, check the box next to Value(s) on Statement A need to be changed. Additional boxes will open.
Enter the business expenses deducted as itemized deductions in the Other deductions related to QBI box.