Determine whether the following taxpayers are eligible for the QBI deduction and

Question

Determine whether the following taxpayers are eligible for the QBI deduction and the deduction amount (if any) Aretha is a married taxpayer filing jointly and a shareholder in Soul Corporation (not an S corporation). She owns 10% of the outstanding stock and the corporation generates $700,000 of taxable income from its business operations and distributes a $70,000 dividend to Aretha. Her total taxable income before the QBI deduction is $92,000. Is Aretha eligible for QBI deduction? Answer yes or no If eligible, how much is the QBI deduction amount?

Explanation / Answer

If taxable income of a tax payer is below $315,000 and the tax payer is married and filing return jointly, then the taxpayer is eligible for QBI deduction. The deduction is the lessor of the following:

(i) 20% of QBI + 20% of qualified REIT dividends and qualified PTP income

(ii) 20% of taxable income - net capital gains

Since Aretha is a married taxpayer and filing return jointly and her taxable income is below $315,000, hence she is eligible for QBI deduction.

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