IRS Guidance (prelim) on QBI deduction

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jebmke
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IRS Guidance (prelim) on QBI deduction

Post by jebmke » Wed Aug 08, 2018 9:58 am

https://www.irs.gov/newsroom/tax-cuts-a ... ncome-faqs

This is only Q&A so I suspect there will be more coming in terms of procedures.
When you discover that you are riding a dead horse, the best strategy is to dismount.

Spirit Rider
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Re: IRS Guidance (prelim) on QBI deduction

Post by Spirit Rider » Wed Aug 08, 2018 10:53 am

jebmke wrote:
Wed Aug 08, 2018 9:58 am
https://www.irs.gov/newsroom/tax-cuts-a ... ncome-faqs

This is only Q&A so I suspect there will be more coming in terms of procedures.
Underwhelming is an understatement. A Q&A would be perfectly fine if it answered anything but the most basic questions that we already knew the answers to. Not shooting the messenger, but is the best they can do?

jebmke
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Joined: Thu Apr 05, 2007 2:44 pm

Re: IRS Guidance (prelim) on QBI deduction

Post by jebmke » Wed Aug 08, 2018 11:00 am

Spirit Rider wrote:
Wed Aug 08, 2018 10:53 am
jebmke wrote:
Wed Aug 08, 2018 9:58 am
https://www.irs.gov/newsroom/tax-cuts-a ... ncome-faqs

This is only Q&A so I suspect there will be more coming in terms of procedures.
Underwhelming is an understatement. A Q&A would be perfectly fine if it answered anything but the most basic questions that we already knew the answers to. Not shooting the messenger, but is the best they can do?
I agree. Not a lot new for anyone who read the bill or even some of the better post-legislation write ups.

I mainly posted this for all the folks who have asked about the "end of July" guidance. I actually laughed out loud when I read this and realized that this was "delayed" from earlier in the month. I guess too many beach trips for US treasury officials.
When you discover that you are riding a dead horse, the best strategy is to dismount.

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: IRS Guidance (prelim) on QBI deduction

Post by Spirit Rider » Wed Aug 08, 2018 11:12 am

Well early on, they said summer and we are only half-way through.

I have done business with federal agencies, many go into slow motion crawl in July and August. I don't know if that applies to the IRS, but I wouldn't be surprised

Stormbringer
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Re: IRS Guidance (prelim) on QBI deduction

Post by Stormbringer » Wed Aug 08, 2018 12:19 pm

"Compound interest is the most powerful force in the universe." - Albert Einstein

Stormbringer
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Re: IRS Guidance (prelim) on QBI deduction

Post by Stormbringer » Wed Aug 08, 2018 1:21 pm

It looks like the IRS is planning to adopt a very narrow and favorable definition of "reputation or skill":
Thus, proposed §1.199A-5(b)(2)(xiv) limits the meaning of the “reputation or skill” clause to fact patterns in which the individual or RPE is engaged in the trade or business of: (1) receiving income for endorsing products or services, including an individual’s distributive share of income or distributions from an RPE for which the individual provides endorsement services; (2) licensing or receiving income for the use of an individual’s image, likeness, name, signature, voice, trademark, or any other symbols associated with the individual’s identity, including an individual’s distributive share of income or distributions from an RPE to which an individual contributes the rights to use the individual’s image; or (3) receiving appearance fees or income (including fees or income to reality performers performing as themselves on television, social media, or other forums, radio, television, and other media hosts, and video game players).
"Compound interest is the most powerful force in the universe." - Albert Einstein

BusterMcTaco
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Re: IRS Guidance (prelim) on QBI deduction

Post by BusterMcTaco » Thu Aug 09, 2018 2:00 am

I scanned it by found no mention of whether employer contribution to retirement plans reduce QBI which was a big question for me. I'm also not clear if S Corp W-2 wages to owners qualify in the W-2 wage calculation.

Spirit Rider
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Re: IRS Guidance (prelim) on QBI deduction

Post by Spirit Rider » Thu Aug 09, 2018 8:27 am

BusterMcTaco wrote:
Thu Aug 09, 2018 2:00 am
I scanned it by found no mention of whether employer contribution to retirement plans reduce QBI which was a big question for me. I'm also not clear if S Corp W-2 wages to owners qualify in the W-2 wage calculation.
The examples are on page 114-155.

Example 1 is a sole proprietor:
The business’s QBI is $100,000, the net amount of its qualified items of income, gain, deduction, and loss.

A sole proprietor's employer contribution is reported on their personal Form 1040 Schedule 1 Line 28. It is not a business deduction and does not appear* to reduce the QBI.

Example 2 is an S-Corp:
The business’s QBI is $100,000, the net amount of its qualified items of income, gain, deduction, and loss. The shareholder-employee's $150,000 in W-2 wages are NOT included in the QBI.

An S-Corp's shareholder-employee's employer contribution is reported on Form 1120S Line 17 as a business deduction and would reduce the QBI.

*We do not yet know if there is any Form 1040 worksheet that would factor in Form 1040 Schedule 1 Lines 12 (business profit) 27 (1/2 SE tax), 28 (employer retirement plan contributions), 29 (self-employed health insurance deduction) and Form 1040 Line 9 (qualified business income) for further limitations.

buglenote
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Re: IRS Guidance (prelim) on QBI deduction

Post by buglenote » Thu Aug 09, 2018 10:41 pm


BusterMcTaco
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Re: IRS Guidance (prelim) on QBI deduction

Post by BusterMcTaco » Thu Aug 09, 2018 11:57 pm

I have a problem with Example 6 (starting on page 121--not going to quote the whole thing here). It seems like because he's a SSTB, they are hitting him double with the reduction:

$300k QBI, $375k taxable (60% through phase-out). I would expect that he would thus be limited to 40% of 20% of $300k, or 40% of $60k, or $24k.

But then they go on to further limit him again to 40% of the difference between his allocable W-2 wages (also reduced by 60%) and that $24k value. That doesn't seem right to me... did I misread?

So if he was an SSTB without W-2 wages, the way this example is laid out he'd be only allowed 0.4 * 0.4 * 0.2 * QBI, which seems to be double-applying the phase-out restriction. Am I wrong?

ETA: So apparently this is correct and I somehow missed it. Seems outrageously unfair, since an SSTB without W-2 payments gets hit exponentially in the phase-out range. It wouldn't have just been enough to not give them a W-2 exception *above* the range?

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