Question

Robert is the sole shareholder and CEO of ABC, Inc., an S corporation that is a qualified trade or business. During the current year, ABC has net income of $303,500 after deducting Robert's $91,050 salary. In addition to his compensation, ABC pays Robert dividends of $212,450. a. What is Robert's qualified business income? $303,500 (This answer is correct) b. Would your answer to part (a) change if you determined that reasonable compensation for someone with Robert's experience and responsibilities is $181,050? $________

Answer 1

Answer: $303,500

No

Explanation: Qualified business income QBI allows sole shareholders of eligible businesses (S corporations, sole proprietorship) such as Robert to lessen their tax burden by up to 20 percent. In this case, 20% of $303,500 can be deducted.

QBI will not change as reasonable compensation is not actual compensation, so this does not apply to QBI.

However, If his salary increases to $181,050, this would make Robert ineligible to qualify for the deduction as his income is more than the $157,500 threshold that makes a single taxpayer eligible for QBI.

This amount is $315,000 for a married couple filing a joint return.