Question

QBI Worksheet Error for SSTB business? Should be: QBI Income x Phase In % x 20%. But NO, worksheet then multiplies that number by the Phase Out %.

Forum|Forum|3 years ago
January 23, 2023
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Example numbers: Initial QBI Income 196,185, my AGI 343, 408. Since I am 13,608 over the 329,800, my phase out % is .1361 and my phase in % is .8639. My QBI deduction should be 196,185 x .8639 x .20 = 33,897. But instead, Turbo Tax takes the 33,897 number and further multiplies it by the phase in % AGAIN leaving a QBI deduction of 29,283.

I get that as an SSTB you are phased out. But why would me eligible QBI Income be multiplied TWICE by the phase in % and then 20% of that given as my deduction. It makes no sense.

I discovered this error on this years taxes but see that the same thing was done for my 2021 taxes.

Am I missing something?

TurboTax Self Employed Online

AliciaP1

Your understanding of the phase-out calculation is correct, but If you are reviewing your QBI for 2022, the limits you have listed are not correct. Also, the limit is based on taxable income before the QBI deduction and not AGI.

To see an example of the calculations, scroll down to "How is the deduction calculated? (Not for the faint of heart!)" at What is the Qualified Business Income (QBI) deduction?

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S

smcelmAuthor

Yes, I know all of that. I also stated that the numbers were for 2021, not 2022. My original question stands. The deduction should be QBI Income x 20% x Phase in %.

The Qualified Business Income Component Worksheet for 2022 calculates it this way:

QBI Income - (QBI Income x Phase Out %) = QBI Income (line 14) (This amt represents the QBI Income applicable to the 20% deduction after the phase out.

Then that number is correctly multiplied by 20% and placed on line 19. In my opinion, Line 19 is the QBI deduction amount after taking into consideration the phase out % for SSTB business. Despite this fact, Line 19 is titled Tentative QBI Component BEFORE limitations??? We have already taken out the phase out percentage in the first calculation. How can this number be BEFORE limitations.

Then the spreadsheet goes awry and multiplies Line 19 by the Phase Out % again (Line 26). Then it deducts Line 26 from Line 19 to arrive at the final QBI deduction.

So, essentially what the Worksheet is doing is multiplying the QBI income x phase in % x phase in % x 20% to arrive at the QBI Deduction. That is wrong!!

Specifics:

QBI Income: 348,331, Reduction Ratio: .3908, Applicable %: .6092

The QBI deduction should be 348,331 x .6092 x .20 = 42,441

In contrast, the worksheet essentially calculates it as 348,331 x .6092 x .6092 x .20 = 25,855

WHY!!!

Rick19744

Employee

There are not sufficient facts to indicate whether TT is calculating this correctly.

However, you indicate that TT is indicating "QBID before limitations".

If a taxpayer is limited as a result of income, there are two other limitations that need to be considered:

50% of W-2 wages
25% of W-2 wages plus 2.5% of qualified property

So based on your specific facts, you need to look at these components (limitations) and factor those into the calculation to determine whether TT is arriving at the correct QBID.

Also keep in mind, that if you are an SSTB and exceed the threshold for MFS or MFJ, there is no QBID period.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.