Question

Raj is a 50% shareholder in an S corporation. In the current year, he is reporting $50,000 of salary, $2,000 of interest income, $20,000 of qualified business income from the S corporation and $10,000 of long-term capital gain. Raj's taxable income before the qualified business income deduction is $65,000. Raj will be allowed a QBI deduction of:________.A) $20,000.B) $4,000.C) $11,000.D) $13,00

Answer 1

Answer:

B) $4,000

Explanation:

The computation is shown below

As the QBI deduction can be less of

20% of Qualified business income

OR

20% of net capital gain

So the 20% of qualified business income is

= $20,000 × 20%

= $4,000

And, the 20% of  Net capital gain is

= ($65,000 - $10,000) × 20%

= $11,000

So, the lesser amount between $4,000 and $11,000 is $4,000