Chapter 2 – Problem 28 – LO.3,4 Scott and Laura are married and will file a joint tax return. Laura has a sole proprietorship (not a
“specified services” business) that generates qualified business income of $300,000. The proprietorship pays W–2 wages of
$40,000 and holds property with an unadjusted basis of $10,000. Scott is employed by a local school district. Their taxable
income before the QBI deduction is $386,600 (this is also their modified taxable income).
– Determine Scott and Laura’s QBI deduction, taxable income, and tax liability for 2020.
– After providing you the original information in the problem, Scott finds out that he will be receiving a $6,000 bonus in
December 2020 (increasing their taxable income before the QBI deduction by this amount). Redetermine Scott and
Laura’s QBI deduction, taxable income, and tax liability for 2020.
– What is the marginal tax rate on Scott’s bonus?
Taxable Income before QBI deduction
386600
Initial QBI Amount
300000
Wage/Capital Investment Limitation
– W2 Wages
40000
Wage/Capital Investment Limitation
– Unadjusted basis for property
10000
Is the QTB ‘specified service’ business? No
MFJ Threshold
Phase In: 326600
Phase Out: 426600
– Determine Scott and Laura’s QBI deduction, taxable income,
and tax liability for 2020.
– After providing you the original information in the problem,
Scott finds out that he will be receiving a $6,000 bonus in
December 2020 (increasing their taxable income before the
QBI deduction by this amount). Redetermine Scott and Laura’s
QBI deduction, taxable income, and tax liability for 2020.
Modified Taxable Income: 386600 x 20% = 77320 no great
than this amount
Modified Taxable Income: 386600 + 6000 = 392600 x 20% =
78520 no great than this amount
Determine Initial QBI amount (20% x QBI): General 20% of QBI
Determine Initial QBI amount (20% x QBI): General 20% of QBI
+
2.5% of Unadjusted basis for property: 10000 x 2.5% = 250
+
2.5% of Unadjusted basis for property: 10000 x 2.5% = 250
Determine the difference between the general 20% QBI
Determine the difference between the general 20% QBI
Determine the Reduction Ratio (Taxable Income Amount
Determine the Reduction Ratio (Taxable Income Amount
Determine the Reduction Ratio in Wage/Capital Investment
Determine the Reduction Ratio in Wage/Capital Investment
