Answer:
a) $5,680
b) $8,906
Explanation:
QBI deduction can be as much as 20% of QBI but it cannot exceed 20% of taxable income before QBI deduction and/or capital gains.
QBI deduction also starts to phase out if the couple's income is higher than $315,000.
phase out = 1 - [($386,600 - $315,000) / $100,000] = 0.284 = 28.4%
we must choose the higher between:
tentative QBI deduction based on W-2 wages = 50% x $40,000 x 28.4% = $5,680
or
QBI deduction based on capital investment limit = (25% x $40,000 x 28.4%) + $0 (no qualified property) = $2,840
allowable QBI deduction:
($300,000 x 20% x 28.4%) - {[($300,000 x 20% x 28.4%) - $5,680] x (1 - 28.4%)} = $17,040 - [($17,040 - $5,680) x 0.716] = $17,040 - $8,134 = $8,906
