Author Topic: QBI Pass-through deduction in the case study spreadsheet  (Read 327 times)

MDM

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QBI Pass-through deduction in the case study spreadsheet
« on: June 27, 2018, 05:47:34 PM »
Based on the fine write-ups listed at the bottom of this post, portions of the new Section 199A deduction for qualified pass-through business income has been added to the case study spreadsheet.  The most recent version is at https://drive.google.com/file/d/0B45krBaG0b6KTWZDeXEySVBHVXc/view?usp=sharing.
 
Some specific things not (yet) addressed at all include
- Net Capital Loss carryover
- Rental and REIT income
- Qualified cooperative dividends

Some things are addressed, but not in detail, e.g.,
- W2 wages paid, and qualified business property owned, by the business.
- Deductions are not determined separately for each business.

The spreadsheet calculations have been tested against all relevant examples in these web sites:
http://www.taxdebthelp.com/blog/pass-through-tax-deduction
https://bradfordtaxinstitute.com/Content/Tax-Reform-Will-Section-199A-Phase-In-or-Phase-Out-Your-20-Percent-Deduction.aspx
https://evergreensmallbusiness.com/sec-199a-deduction-phase-calculations/
https://taxfoundation.org/reforming-pass-through-deduction-199a
https://www.taxpolicycenter.org/publications/navigating-new-pass-through-provisions-technical-explanation/full
https://www.thetaxadviser.com/issues/2018/apr/understanding-sec-199A-business-income-deduction.html

Suggestions, corrections, and comments welcome.

MDM

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #1 on: June 27, 2018, 06:30:21 PM »
The new law does appear to generate some very high marginal rates in certain places.  E.g., ~59% in Table 3: Effect of the Pass-Through Deduction on Marginal Tax Rates for Households in the Deduction Phaseout Range (for MFJ), and the chart shown below for a single filer with $100K "specified service" business income (say, from a side venture) and $100K gross salary from a day job:


SeattleCPA

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #2 on: June 28, 2018, 03:04:16 PM »
Hi MDM. I'm just poking around with your spreadsheet... two initial questions and a comment.

Question #1: Where does the QBID number show up? Sorry, I looked but I am missing it.... Ugh.

Question #2: Is your idea that S corporation and partnership distributive shares (i.e., owner profit allocations) can lumped with the rental income and expense? BTW this would probably work... (you could even throw REIT dividends into this.)

Comment: Not sure you want to go there, but I did describe how the qualified cooperatives Sec. 199A, or qualified business income, deduction works here:

https://evergreensmallbusiness.com/sec-199a-technical-corrections-fix-grain-glitch/

Er, surely you have better ways to spend your time. Unless you're a farmer.
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MDM

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #3 on: June 28, 2018, 03:29:53 PM »
Hi MDM. I'm just poking around with your spreadsheet... two initial questions and a comment.

Question #1: Where does the QBID number show up? Sorry, I looked but I am missing it.... Ugh.

Question #2: Is your idea that S corporation and partnership distributive shares (i.e., owner profit allocations) can lumped with the rental income and expense? BTW this would probably work... (you could even throw REIT dividends into this.)

Comment: Not sure you want to go there, but I did describe how the qualified cooperatives Sec. 199A, or qualified business income, deduction works here:

https://evergreensmallbusiness.com/sec-199a-technical-corrections-fix-grain-glitch/

Er, surely you have better ways to spend your time. Unless you're a farmer.
#1 - Great question, and I should have been more explicit.  The result is in Calculations!G14.  The 3 inputs that don't come from inputs needed for "regular" tax calculations are in Calculations!Y140:Y142. 

#2 - Haven't decided the best way to use REIT income.  E.g., it could be a separate line item for the "regular" tax input (which could require folks to separate their 1099 numbers) or a separate input in the QBI calculation block (which could lead to confusion about whether it should be entered in two or only one place).
For rental income, do you expect one can use net income from schedule E (which includes the depreciation subtraction), and if so how losses will be treated?  I pretty much decided to punt on this until IRS guidance arrived, but if you have (or anyone has) a very good idea of what is coming, that would be great.

As for (what I perceive as) the more complicated S Corp and partnership issues, well, I'm not trying to compete with the TurboTax, etc., folks, nor even with the gentleman who does Federal Income Tax Form 1040 (Excel Spreadsheet) Income Tax Calculator.  The original purpose of the Case Study Spreadsheet was to help people with the simple math of adding expenses and estimating net income.  Over time, the tax calculations have evolved into (what I think is) a pretty decent system for evaluating both tax due and the marginal rates one pays (or saves) along the way - for individuals with primarily W-2 and 1099 income.

For the longest time I thought state taxes would be completely out of scope, until I found https://taxfoundation.org/state-individual-income-tax-rates-brackets-2018/ (and similar for other years).  If there is a simple "drop-in" for small businesses, then maybe...but otherwise, yes, there are other things I could do. :)

SeattleCPA

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #4 on: June 29, 2018, 02:32:01 PM »
#2 - Haven't decided the best way to use REIT income.  E.g., it could be a separate line item for the "regular" tax input (which could require folks to separate their 1099 numbers) or a separate input in the QBI calculation block (which could lead to confusion about whether it should be entered in two or only one place).
For rental income, do you expect one can use net income from schedule E (which includes the depreciation subtraction), and if so how losses will be treated?  I pretty much decided to punt on this until IRS guidance arrived, but if you have (or anyone has) a very good idea of what is coming, that would be great.

I am new to your spreadsheet, but I think you could just have people include the REIT dividends and any publicly traded partnership income with the real estate taxable income (which would be after all expenses including depreciation)


As for (what I perceive as) the more complicated S Corp and partnership issues, well, I'm not trying to compete with the TurboTax, etc., folks, nor even with the gentleman who does Federal Income Tax Form 1040 (Excel Spreadsheet) Income Tax Calculator.  The original purpose of the Case Study Spreadsheet was to help people with the simple math of adding expenses and estimating net income.  Over time, the tax calculations have evolved into (what I think is) a pretty decent system for evaluating both tax due and the marginal rates one pays (or saves) along the way - for individuals with primarily W-2 and 1099 income.

I think the partnership and S corporation may be simpler for spreadsheet to handle than is at first apparent. I think--and maybe I'm missing something--that this info could simply be combined with rental income. Your rental income and expense amounts, then, cover all the Schedule E stuff.

BTW, I think it's fine you don't handle the W-2, depreciable assets and specified service trade or business limitations. Those won't affect many folks.

I need to think a bit more about this, but I think think losses on some qualified business income 'generator' will need to be carried forward to future periods and in those future periods will reduce QBI. But let me ponder this, look again at the statute with this question in mind, and then give a better answer. This truly may fall into category of  'going way too far into the weeds.' As you wisely note, you're not attempting to replace TurboTax. I also think some of this complexity probably goes beyond TurboTax.
My blog Evergreen Small Business
My free downloadable ebook: Thirteen Word Retirement Plan