Thad, a single taxpayer, has taxable income before the QBI deduction of $176,000. Thad, a CPA, operates an accounting practice as a single member LLC (which he reports as a sole proprietorship). During 2020, his proprietorship generates qualified business income of $140,800, W–2 wages of $105,600, and $8,400 of qualified property. Required:
What is Thad's qualified business income deduction?

$21,007.36

Explanation:

Qualified business income deduction for a single member small business:

= Qualified business income * 20% * Applicable percentage if taxable income is above $163,300 limit on QBI deduction

Applicable percentage if taxable income is above $163,300 limit on QBI deduction:

Amount over $163,300 limit:

= 176,000 - 163,300

= $12,700

= 100% - (12,700 / 50,000)

= 100% - 25.4%

= 74.6%

QBI deduction = 140,800 * 20% * 74.6%

= $21,007.36

Note: The $50,000 used in dividing the difference above is the difference between the $163,300 limit for full deduction and $213,300 limit for a partial deduction.

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