Skip to main content

Sec. 199A QBI Deduction for Taxpayers Between the Threshold Amounts

If you have not read my initial post on the Sec. 199A QBI deduction, please do so now. Follow the link HERE. If you were directed from the original post, please continue to read on.

TCJA enacted the Sec. 199A QBI deduction. The deduction allows eligible taxpayers to deduct up to 20% of their qualified business income. Sec. 199A places several limitations on the deduction based several factors, including taxable income and business category type (QTB vs. SSTB). The purpose of this post is to explain and provide an example relating to taxpayers with taxable income between the threshold amounts. Depicted below are the 2019 single and married filing jointly taxable income thresholds relating to the QBI deduction:

For 2019, the depicted taxable income thresholds will apply for the QBI deduction calculation. For taxable incomes between the threshold amounts (if single, $160,700 – $210,700), special and complex rules apply. In my previous Sec. 199A QBI post, I grouped taxpayers into three types (type 1, type 2, & type 3). For consistency, I only discuss type 2 in this post. Lets begin!
To refresh, Sec. 199A applies two limitations to the QBI deduction, which include the W-2 wage and property limitation and the overall taxable income limitation.

W-2 wage and property limitation

The taxpayer’s taxable income triggers the W-2 wage and property limitation. When applicable to the taxpayer, the W-2 wage and property limitation limits the QBI deduction to the greater of:   
  • 50% of W-2 wages for the business entity; or 
  • 25% of the W-2 wages + 2.5% of the unadjusted basis of all qualified property.

Overall Taxable Income Limitation

Sec. 199A also places an overall taxable income limitation on the QBI deduction. The overall taxable income limitation states that the QBI deduction is the lesser of:
  • QBI deduction; or 
  • 20% of the taxpayer’s taxable income in excess of net capital gains

Type 2 [Taxpayers with taxable income between $160,700 - $210,700 (S)/$321,400 - $421,400 (MFJ)]
  • If QTB, then phase-in the W-2 wage and property limitation
  • If SSTB, then QBI, W-2 wages, and qualified property amounts are reduced, followed by the phased-in W-2 wage and property limitation reduction

I will not provide an example of a Type 2 SSTB taxpayer. If requested, I can provide an example. Please comment your questions and thoughts. Share with anyone confused on Sec. 199A qualified business income deduction.


Popular posts from this blog

Gambling Winnings & Losses: How to report gambling income and losses

People love to gamble.  During the past NFL Super Bowl (2019),  gamblers wagered approximately $146 million in Nevada’s sports books, which fell short of the record set the year before of $159 million. The gambling industry continues to grow as U.S. legislation becomes less restrictive relating to the gambling industry.  Because of the size of the gambling market, the IRS set forth guidance to control the tax treatment of gambling winnings and losses. I will discuss income and losses, record keeping, reporting forms, and special rules. If you participate in gambling activities, it is important to know the unique personal tax rules. The term 'gambling' applies to a wide range of activities, including: sports betting, casino games, lotteries, etc. You will need to follow the established gambling tax rules when reporting winnings and losses from gambling activities. Related Posts IRA Income: Must know tax rules relating to your IRA Are your income items taxable? Gamblin

File your taxes online for free: The IRS Free File Program Explained

It is officially tax filing season. While many people dread filing their tax return, I have some good news that may cheer you up and save you some money during this tax filing season. For those that meet the requirements, you may file your tax return for free via the IRS Free File Program! What is the IRS Free File Program? The IRS Free File program is a partnership between the IRS and leading tax-preparation companies. The partnership states that these tax-prep software companies must provide free online tax preparation and electronic filing for those who qualify for Free File. What are the requirements to qualify for the IRS Free File Program? You may file your taxes for free using the Free File software if your income is $72,000 or less (for tax year 2020). By qualifying for Free File, you may choose from several brand-name tax software companies. The software will guide you through the tax preparation process, ultimately preparing and printing your tax return. If your inc

20 Tips & Tricks for Studying for the CPA Exam

For those on the way to becoming a certified public accountant, you now know it is a long and difficult journey. For those just beginning, good luck! The most difficult and time-consuming task is passing the CPA Exam. CPA candidates must spend hundreds of hours preparing for all four sections of the CPA. Each CPA section represents an entirely different topic, creating a daunting task for anyone looking to start studying for the CPA exam. I passed all four sections of the CPA with an average score of 91. Luckily, I did not have to retake any of the exams, which is a common occurrence as the average passing rate is around 40-50% per exam. Having personal experience dealing with the CPA exam process, I want to share valuable tips for conquering the CPA exam. I want you to feel confident and comfortable during the CPA exam process, and so, I believe the following tips will help you during the CPA exam process. Lets begin! Related Posts -  Preparing for the CPA Exam: How to Study