Chapter 2 – Problem 37 – LO.

3,4 Elliot operates his clothing store as a single member LLC (which he reports as a sole
proprietorship). In 2020, his proprietorship generates qualified business income of $280,000, he pays W–2 wages of $170,000,
and he has qualified business property of $140,000. Elliot’s wife, Julie, is an attorney who works for a local law firm and receives
wages of $90,000. They will file a joint tax return and use the standard deduction. What is Elliot’s qualified business income
deduction?

Initial QBI Amount 280000

Wage/Capital Investment Limitation 170000
- W2 Wages
Wage/Capital Investment Limitation 140000
- Property unadjusted basis
Is the QTB ‘specified service’ business? No
MFJ Threshold
Phase In: 326600
Phase Out: 426600
Determine Initial QBI amount (20% x QBI): General 20% of QBI deduction amount: 280000 x 20% = 56000
Wage/Capital Investment Limitation amount (*greater of the two*) –
50% of W2 Wages: 170000 x 50% = 85000
or
25% of W2 Wages: 170000 x 25% = 42500
+
2.5% of Unadjusted basis for property: 140000 x 2.5% = 3500
= 46000
Is taxable income before QBI deduction over MFJ Threshold Phase Out (422600)? No
Is General 20% of QBI deduction amount less than Wage/Capital Investment Limitation? Yes  QBI Amount is General 20% of
QBI deduction amount: $56000
*Do we factor in Julie’s salary (90000)?