Answer:
Qualified Business Income (QBI) Deduction:
With respect to the applicable provisions, the following are the provisions relating to QBI deduction:
(a) For Joint filers, if the taxable income is less than $315,000, the QBI deduction is limited to 20% of the qualified business income.
(b) The qualified business income includes the interest income not allocable to the business.
In the present case, the interest amount of $20,000 will not be considered for the calculation of QBI deduction (refer point (b) above).
Therefore, the total taxable income of S and her spouse will be $274,400 ($200,000 + $74,400) which was below the threshold limit of $315,000. Hence, they can claim the QBI deduction of 20% on the qualified business income of $200,000. The QBI deduction for 2018 is calculated as under:
QBI Deduction for 2018 = QBI x 20%
= $200,000 x 20%
= $40,000
Therefore, the QBI deduction for 2018 is $40,000.
Note: If the total taxable income exceeds the threshold limit of $315,000 for QBI deduction, the value of W-2 wages and qualified property would have been considered.
