Rob operates a small plumbing supplies business as a sole proprietor. In 2018, the plumbing business has gross business income of $421,000 and business expenses of $267,000, including wages paid of $58,000. The business sold some land that had been held for investment generating a long-term capital gain of $15,000. The business has $300,000 of qualified business property in 2018. Rob's wife, Marie, has wage income of $250,000. They jointly sold stocks in 2018 and generated a long-term capital gain of $13,000. Rob and Marie have no dependents and in 2018, they take the standard deduction of $24,000.

The income threshold for QBI limitations starts at $315,000 for married filing jointly taxpayers.

a. What is Rob and Marie's taxable income before the QBI deduction?

b. What is Rob and Marie's QBI?

c. What is Rob and Marie's QBI deduction?

a. Taxable income before the QBI deduction = $408,000

b. QBI = $154,000

c. Net QBI deduction = $29,126

Explanation:

a.                             Taxable income statement

Marie wage income                                    $250,000

Business income

($421,000 - $267,000)                                $154,000

Long term capital gain

($13,000 + $15,000)                                      $28,000

Total income                                                  $432,000

Less: Standard deduction                             $24,000

Taxable income before the QBI deduction  $408,000

b. Rob and Marie's QBI

                             Statement Showing QBI

Gross income                        $421,000

Less: Business income          $267,000

QBI                                           $154,000

c. Rob and Marie's QBI deduction

QBI deduction percentage × QBI

= 20% × $154,000

= $30,800

or

20% × ($408,000 - $28,000)

= $76,000

whichever less

Before phaseout QBI Deduction = $30,800

Net QBI deduction = Allowable QBI deduction - Phaseout reduction

= $30,800 - $1,674

= $29,126