Copyright © 2018 Keebler Tax & Wealth Education, Inc.

Rev. 1/31/2019

1 **Go Zone: Simple Calculation.** Unmarried, sole proprietor, computer repair shop. QBI $100K x 20% vs Taxable (Go Zone) $81K x 20% => Deduction **$16,200**.

2 **Capital Gain Backed out of Taxable Before Applying 20% Limitation.**Similar to Example 1, but Taxable $74K includes $7K gain. Gain backed out. QBI $100K x 20% vs Taxable (Go Zone) $67K x 20% => Deduction **$13,400**.

3 **Married, S Corporation, Go Zone, Wages/UBIA Don't Matter.** B and C married. C sole owner of X, an S Corporation providing landscaping services. QBI $100K x 20% vs. Taxable (Go Zone) $270K x 20% => Deduction **$20K**.

4 **REIT and PTP.** Same as Example 3, but REIT $1,000 and PTP $500. Combined REIT/PTP $1,500 x 20% => Additional Deduction **$300**.

5a **Netting of Negative QBI.** Cathy QBI A $30K, QBI B Loss ($50K). Net QBI ($20K), carry forward to next year. Deduction **$0**.

5b **QBI Loss Carryforward.** 2019. QBI AB Loss Carryforward ($20K), QBI A $30K, QBI B $40K. Net QBI $50K x 20% vs. Taxable (Go Zone) $50K x 20% => Deduction **$10K**.

6 **No Wages, No UBIA, No Deduction.**D, $1M QBI x 20% vs. Taxable (No Zone) $980K x 20%. No Wages or UBIA => Deduction **$0K**.

7 **UBIA.** Same as Example 6, but D spends $10M on parking structure. QBI $4M x 20% vs. UBIA $10M x 2.5% => $250K vs. Taxable (No Zone) $3.98M x 20% => Deduction **$250K**.

8 **Wages and UBIA.** E, LLC 30% owner. QBI $900K x 20% vs. greater of $300K Wages x 50% or (Wages $300K x 25% + UBIA $30K x 2.5%) => $150K vs. $Taxable (No Zone) 880K x 20% => Deduction **$150K**.

9 **Positive QBI; Negative PTP Carried Forward.** F, unmarried, S Corp 30% owner. QBI $3M x 20% vs. greater of Wages $1M x 50% or (Wages $1M x 25% + UBIA $100K x 2.5%) => $500K vs. Taxable (No Zone) $1.88M x 20% => Deduction **$376K**. Negative PTP carried forward to next year.

10 **Twilight Zone, non-SSTB, Phase-in.** B and C married, QBI $300K x 20% vs. $Taxable (Twilight Zone) 375K x 20% => $60K (tentative deduction). Wages $40K x 50% => $20K. $60K - $20K => Excess Amount $40K x 40% unconsumed Twilight Zone => $16K + Wages Base $20K => Deduction **$36K**.

11 **No Zone, SSTB, SOL.** Brad married lawyer with QBI $450K => Taxable (No Zone) $450K. Because SSTB, Deduction $0. Goal is to reduce income to $315K x 20% to generate a **$63K** Deduction.

12 **Twilight Zone, SSTB, Phase-in and Phase-out.** Same as Example 10, but SSTB causes phase-out in addition to Wage/UBIA phase-in. Previous result $36K x 40% (unconsumed Twilight Zone or 'Applicable Percentage') => Deduction **$14.4K**.

13 **No Aggregation.** F, unmarried, X, Y, Z. QBI "X" $1M x 20% vs. Wages $500K x 50% => $200K; QBI Y $1M x 20% vs. Wages $0K x 50% => $0K; QBI Z $2K x 20% vs. Wages $500K x 50% => $400; XYZ $200,400 vs. Taxable (No Zone) $2.722M x 20% => Deduction **$200,400**.

14 **Aggregation.** Same as Example 13, but F aggregates XYZ. Aggregated QBI $2.002M x 20% vs. Aggregated Wages $1M x 50% => Deduction **$400,400**.

15 **No Aggregation, Netting of Negative QBI.** Same as Example 13, but QBI Z Loss $600K. Loss $600K netted 1/2 to X, 1/2 to Y. QBI X $1M - Loss $300K => Net QBI $700K x 20% vs. Wages $500K x 50% => Deduction **$140K** for X. Deduction $0 for Y (no wages).

16 **Aggregation, No Netting of Negative QBI Required.** Same as Example 15, but aggregate XYZ. Aggregated QBI $1.4M x 20% vs. Aggregated Wages $1M x 50% => Deduction **$280K**.

17a **No Aggregation, Netting of Negative QBI, Combined Negative QBI Carried Forward.** Same as Example 16, but Z QBI Loss $2.15M. Loss $2.15M netted 1/2 to X, 1/2 to Y. QBI XY $2M - Loss $2.15M => Net QBI Loss ($150K) => Deduction **$0K**.

17b **Netting of Negative QBI.** 2019 year. QBI 2018 Loss ($150K) carried forward to 2019, netted with other QBI XYZ, QBI $200K - $154,286 Loss => Net QBI $45,714 x 20% vs. Wages $100K x 50% => Deduction for business "X"** $9,143**.

18a **Aggregation, Negative QBI 2018 Carried Forward to 2019 (again Net Negative QBI), then Carried Forward to 2020.** Same as Example 17a, but aggregate Loss Carryforward with 2019 QBI XYZ. Aggregated 2019 QBI Loss ($150K) => Deduction ** $0**. QBI Loss ($150K) carried forward to 2020.

18b **Aggregation, Negative QBI Carried Forward to 2019, Net Positive QBI.** Same as Example 17b, but aggregate Loss Carryforward with QBI XYZ. Aggregated QBI $80K x 20% vs. Aggregated Wages $100,500 x 20% => Deduction **$16K**.

20a **Trust with Partners A and B (Who Are also Trust Beneficiaries).** Trust owns 25% of PRS Partnership and 100% of LLC. AB together own 75% of PRS. A is 50% beny of Trust. B is 25% beny of Trust. Trust aggregated QBI Loss ($47K). Sets the stage for individual and trust §199A Deduction results for 19b-d.

20b **Trust Beneficiary A.** A QBI Loss ($47K) x 50% => ($23.5K) + $100K separate QBI => Aggregated QBI $76.5K x 20% vs. Aggregated Wages $40K x 50% => $15.3K vs. Taxable (No Zone) $357.5K x 20% => Deduction **$15.3K**.

20c **Trust Beneficiary B.** B QBI Loss ($47K) x 25% => ($11,750) carried forward to next year. Deduction **$0**.

20d **Trust.** Trust QBI Loss ($47K) x 25% => ($11,750) carried forward to next year. Deduction **$0**.

36 **Partnership, Non-SSTB.** Partner X in Partnership XYZ, QBI $1M x 20% vs. Wages $360K x 20% => Deduction **$180K**.

41 **Wages $0.** John/Melissa QBI $100K x 20% vs. Wages $0 x 20% => $0 vs. Taxable (No Zone) $415K x 20% => Deduction **$0**.

43 **Increase Wages.** Same as Example 41, but convert to S Corporation, pay Melissa Wages $50K (which reduces QBI). QBI $50K x 20% vs. Wages $50K x 50% => $10K vs. Taxable (No Zone) $415K x 20% => Deduction **$10K**.

44 **Increase Wages More.** Same as Example 41, but pay Melissa Wages $28,571 (which reduces QBI). QBI $71,429 x 20% vs. Wages $28,571 x 20% => $14,286 vs. Taxable (No Zone) $415K x 20% => Deduction **$14,286**. The Wages of $28,571 ($100K x 2/7) represent the "Sweet Spot" (optimal balance of QBI and Wages). If $28,571 not considered "reasonable compensation", IRS might try to recharacterize some of the S Corporation profit as W-2 Wages.

45a **Pay Independent Contractors.** Ted, single, sole proprietor of TR Trucking, 2 drivers (independent contractors), paid $50K each. QBI $225K x 20% vs. Wages $0 x 50% => $0 vs. Taxable (No Zone) $250K x 20% => Deduction **$0**.

45b **Convert Independent Contractors to Employees.** Same as Example 43a, but Ted converts 2 drivers to employees. QBI $225K x 20% vs. Wages $100K x 50% => $45K vs. Taxable (No Zone) $250K x 20% => Deduction **$45K**.

46a **Wages Low.** Linda, single, sole proprietor of bakery. QBI $230K x 20% vs. Wages $30K x 50% => $15K vs. Taxable (No Zone) $240K x 20% => Deduction **$15K**.

46b **Increase Wages.** Same as Example 46a, except increase wages by $10K. QBI $220K x 20% vs. Wages $40K x 50% => $20K vs. Taxable $230K x 20% => Deduction $20K (increase of $5K).

47a **Wages High.** Tim/Dora, married, own S Corporation. QBI $150K x 20% vs. Wages $120K x 50% => $30K vs. Taxable (Twilight Zone) $315K x 20% => Deduction **$30K**.

47b **Decrease Wages.** Same as Example 47a, but decrease wages by $40K to $80K. QBI $190K x 20% vs. Wages $80K x 50% => $38K vs. Taxable (Twilight Zone) $315K x 20% => Deduction **$38K** (increase of $8K).

47c **Decrease Wages More.** Same as 47a, but reduce wages by $42,857 to $77,143. QBI $192,857 x 20% vs. Wages $77,143 x 50% => $38,571 vs. Taxable (Twilight Zone) $315K x 20% => Deduction **$38,571** (increase of $8,571). The Wages of $77,143 ($270K x 2/7) represent the "Sweet Spot" (optimal balance of QBI and Wages).

48a **No Wages, No UBIA (Rents Building and Leases Machinery).** Bill/Kelly own sole proprietorship, rent building and lease machinery. No wages, no UBIA. QBI $1M x 20% vs. Wages/UBIA $0 => $0 vs. Taxable (No Zone) $1M x 20% => Deduction **$0**.

48b **Buys Building.** Same as Example 48a, but Bill/Kelly buy building for $1M. QBI $1M x 20% vs. UBIA $1M x 2.5% => $25K vs. Taxable (No Zone) $1M x 20% => Deduction **$25K**.

49 **No UBIA (Leases Trucks).** Beth owns trucking company, leases trucks. QBI $800K x 20% vs. Wages/UBIA $0 => $0 vs. Taxable (No Zone) $700K x 20% => Deduction **$0**.

50 **Buys Trucks.** Same as Example 49, but Beth buys trucks for $1M. QBI $800K x 20% vs. UBIA $1M x 2.5% => $25K vs. Taxable (No Zone) $700K x 20% => Deduction **$25K**.

51 **No Charitable or Qualified Plan Contributions.** Tom, single, lawyer, pays wages $100K, leases office space. QBI $240K x 20% vs. Wages $100K x 50% => $48K vs. Taxable (No Zone) $208,500 x 20% => Deduction **$0** (because lawyer in the No Zone and engaged in SSTB).

52 **Charitable Contribution.** Same as Example 51, but Tom makes a charitable contribution of $51K. QBI $240K x 20% vs. Wages $100K x 50% => $48K vs. Taxable (Go Zone) $157,500 x 20% => Deduction **$31.5K**.

53a **No Gifts of Business Interests.** Al/Paula, married, own AP Partnership. No wages. QBI $400K x 20% vs. Wages $0 x 50% => $0 vs. Taxable (No Zone) $500K x 20% => Deduction **$0** (because in the No Zone and no wages paid).

53b **Gifts of Business Interests (Parents' Result).** Same as Example 53a, but Al/Paula gift 25% interest in AP to each of children Ted and Susan (both married). Al/Paula (parents) reduced QBI $200K x 20% vs. reduced Taxable (Go Zone) $300K x 50% => Deduction **$40K** for parents.

53c **Gifts of Business Interests (Children's Results).** Ted and Susan (children) each has $200K Taxable (including AP QBI $400K x 25%). QBI $100K x 20% vs. Taxable (Go Zone) $200K x 20% => Deduction **$20K** for each child. Total increase in Deduction for family: $40K + $20K + $20K = $80K.

54a **Interplay with Capital Gains.** Gary, single, farmer. QBI $100K x 20% vs. Taxable (Go Zone) $85K x 20% => Deduction **$17K**. Sale of piece of land with resulting capital gain would not increase "Modified Taxable", because Net Capital Gain is backed out of Taxable before 20% limitation is applied.

54b **Second Job Increases Taxable and §199A Deduction.** Same as Example 54a, but Gary takes a second job at a store and earns additional $15K. QBI $100K x 20% vs. Taxable (Go Zone) $100K x 20% => Deduction **$20K** (increase of $3K).

55a **Partnership Guaranteed Payments.** Brothers Paul/Al partners in non-SSTB partnership with no UBIA, guaranteed payments of $150K each. Each QBI $150K x 20% vs. Wages $200K x 50% => $30K vs. Taxable (No Zone) $207.5K x 20% => Deduction **$30K**.

55b **Reduce Partnership Guaranteed Payments, Increase §199A Deduction.** Same as Example 55a, except that guaranteed payments reduced from $150K to $50K each. Each increased QBI $250K x 20% vs. Wages $200K x 50% => $50K vs. Taxable (No Zone) $207.5K x 20% => Deduction **$50K**.

56a **Single.** Dawn, single, doctor. QBI $282K x 20% vs. Wages/UBIA $0 => $0 vs. Taxable (No Zone) $270K x 20% => Deduction **$0** (in No Zone, SSTB, no wages).

56b **Married. ** Same as Example 56a, except that Dawn marries Sam, who makes $52K as teacher. QBI $282K x 20% vs. Taxable (Go Zone) $310K x 20% => Deduction **$56.4K**.

57a **Single.** Larry, single, consultant. QBI $500K x 20% vs. Wages/UBIA $0 => $0 vs. Taxable (No Zone) $500K x 20% => Deduction **$0**.

57b **Single.** Robin, single, consultant. QBI $150K x 20% vs. Taxable (Go Zone) $150 x 20% => Deduction **$30K**. Note that combined tax result for Larry (single) and Robin (single, even with $30K §199A Deduction) not much better than married/joint (with no $199A Deduction). See Example #55c.

57c **Married (Examples 57a and 57b Combined).** Larry and Robin marry. QBI $650K x 20% vs. Wages/UBIA $0Taxable => $0 vs. Taxable (No Zone) $650K x 20% => Deduction **$0**.

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