Question

Roquan, a single taxpayer, is an attorney and practices as a sole proprietor. This year, Roquan had net business income of $90,000 from his law practice (net of the associated for AGI self-employment tax deduction). Assume that Roquan pays $40,000 in wages to his employees, has $10,000 of property (unadjusted basis of equipment he purchased last year), and has no capital gains or qualified dividends. His taxable income before the deduction for qualified business income is $100,000.
Required:
Calculate Roquan’s deduction for qualified business income. Assume the same facts as earlier, except Roquan’s taxable income before the deduction for qualified business income is $300,000.
1. Calculate Roquan’s deduction for qualified business income.
2. Assume the same facts as earlier, except Roquan’s taxable income before the deduction for qualified business income is $300,000.

Answer 1

Answer:

1) $18,000

2) $0

Explanation:

1) The wage based limits in business applies only to taxpayers with taxable income in excess of $157,500 or excess of $315,000, if it is a joint return.

Now, in this case, Roquan's taxable income which is $100,000 is less than the wage limits of $157,500 earlier stated. This implies that it doesn't qualify for wage-based limits.

Therefore, from business practices, Roquan will likely deduct 20% of the net $90,000 which is $18,000 to serve as deduction for qualified business income.

2) We are told that Roquan's taxable income before the deduction for qualified business income is now $300,000. What this implies is that his law practice would be judged to be a trade business and he would therefore not be eligible for deduction of the qualified business income.

Thus, it's $0.