Author Topic: QBI Pass-through deduction in the case study spreadsheet  (Read 2052 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.

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.

dandarc

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #5 on: September 06, 2018, 05:51:32 PM »
I think I had read something and assumed I didn't qualify for this - then today it came up again, and now it is like what?

I feel like we're high income and I'm definitely in a service business, but we are decidedly not over the MFJ limit for this - I can shelter 18K + 20% into the soloK, and then take another 20% off? Seriously?

Of course MDM has already put this into the spreadsheet.

MDM

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #6 on: September 06, 2018, 08:45:27 PM »
I think I had read something and assumed I didn't qualify for this - then today it came up again, and now it is like what?

I feel like we're high income and I'm definitely in a service business, but we are decidedly not over the MFJ limit for this - I can shelter 18K + 20% into the soloK, and then take another 20% off? Seriously?

Of course MDM has already put this into the spreadsheet.
...and just happened to be reviewing this very thing.  At one point it seemed the term "taxable income" (e.g., see https://www.irs.gov/pub/irs-drop/reg-107892-18.pdf) would be the same as "Adjusted Gross Income" (AGI).  But, although I've yet to find a specific IRS definition as it applies to QBI, posts such as Rules For Deducting Qualified Pass-Through Business Income lead me to believe "taxable income" for QBI purposes is "AGI minus the standard (or itemized) deduction."

Enough things have accumulated that I'll probably upload a new version sometime soon.  Meanwhile, if one wants to use "AGI minus deduction", simply change cell Y134 from =G11 to =G11-G13.

terran

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #7 on: September 06, 2018, 09:27:27 PM »
I think I had read something and assumed I didn't qualify for this - then today it came up again, and now it is like what?

I feel like we're high income and I'm definitely in a service business, but we are decidedly not over the MFJ limit for this - I can shelter 18K + 20% into the soloK, and then take another 20% off? Seriously?

Of course MDM has already put this into the spreadsheet.
...and just happened to be reviewing this very thing.  At one point it seemed the term "taxable income" (e.g., see https://www.irs.gov/pub/irs-drop/reg-107892-18.pdf) would be the same as "Adjusted Gross Income" (AGI).  But, although I've yet to find a specific IRS definition as it applies to QBI, posts such as Rules For Deducting Qualified Pass-Through Business Income lead me to believe "taxable income" for QBI purposes is "AGI minus the standard (or itemized) deduction."

Enough things have accumulated that I'll probably upload a new version sometime soon.  Meanwhile, if one wants to use "AGI minus deduction", simply change cell Y134 from =G11 to =G11-G13.

I thought I also saw something that indicated capital gains wouldn't be included either? So AGI minus deductions minus capital gains. I don't have a source for this, but it was probably from the guidance published in early August or from commentary on that guidance.

MDM

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #8 on: September 06, 2018, 09:52:03 PM »
I thought I also saw something that indicated capital gains wouldn't be included either? So AGI minus deductions minus capital gains. I don't have a source for this, but it was probably from the guidance published in early August or from commentary on that guidance.
Thanks - a capital gains deduction is already in the spreadsheet.  Whether it is in there correctly...?  All I know for now is that the spreadsheet matches all the relevant examples I've been able to find.

Some of the examples seem odd.  E.g.,
Quote
B and C are married and file a joint individual income tax return.  B
earned $500,000 in wages as an employee of an unrelated company in 2018. 
C owns 100% of the shares of X, an S corporation that provides landscaping services.  X
generated $100,000 in net income from operations in 2018.  X paid C $150,000 in
wages in 2018.  B and C have no capital gains or losses.  After allowable deductions
not related to X, B and Cs total taxable income for 2018 is $270,000.
That's a lot of "allowable deductions" but with enough charitable contributions, etc., ....

BTDretire

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #9 on: September 14, 2018, 02:50:17 PM »
I'm sorry, I have clicked on your spreadsheet a half a dozen times,
finally today, I notice the 'Open with Google sheets' at the top.
Oh finally I'll be able to use this. Nope the google sheet opens,
 and I still have no idea what to do.
First line says use the Calculations Tab, Ok, where is that.
 Can someone walk me through this?

MDM

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #10 on: September 14, 2018, 04:21:35 PM »
I'm sorry, I have clicked on your spreadsheet a half a dozen times,
finally today, I notice the 'Open with Google sheets' at the top.
Oh finally I'll be able to use this. Nope the google sheet opens,
 and I still have no idea what to do.
First line says use the Calculations Tab, Ok, where is that.
 Can someone walk me through this?
It definitely works better in Excel than in Sheets.  See Any Google Sheets knowledge?

It opens in the Instructions tab.  The Calculations tab is the second one from the left - see the bottom of your screen.

At this point we have more or less reached the end of my Google Sheets knowledge....

BTDretire

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #11 on: September 14, 2018, 05:05:07 PM »
I'm sorry, I have clicked on your spreadsheet a half a dozen times,
finally today, I notice the 'Open with Google sheets' at the top.
Oh finally I'll be able to use this. Nope the google sheet opens,
 and I still have no idea what to do.
First line says use the Calculations Tab, Ok, where is that.
 Can someone walk me through this?
It definitely works better in Excel than in Sheets.  See Any Google Sheets knowledge?

It opens in the Instructions tab.  The Calculations tab is the second one from the left - see the bottom of your screen.

At this point we have more or less reached the end of my Google Sheets knowledge....
OK, that's better I have more working knowledge with Excel than sheets.
So, I have managed to open the program in Openoffice in the read only mode.
 OK finally found the calculations tab at the bottom of the page.
 How frustrating!

BTDretire

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #12 on: September 14, 2018, 07:02:41 PM »
Now that I have it open- WOW, you have put a lot in there!
I don't see a specific schedule C income goes here line, do I just put net income into the
Gross salary line?

MDM

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #13 on: September 14, 2018, 07:28:35 PM »
Now that I have it open- WOW, you have put a lot in there!
I don't see a specific schedule C income goes here line, do I just put net income into the
Gross salary line?
Row 30: Schedule C net profit.

The inputs more or less follow the order on Form 1040.

BTDretire

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #14 on: September 14, 2018, 07:40:51 PM »
Yep found it,
 How about SEP contributions?
 And where does my healthcare insurance deduction go?
 Cell B72 has $6,434 in it, I don't know why, zeros in 68 thru 71?
                            Thank you :-)
« Last Edit: September 14, 2018, 07:49:44 PM by BTDretire »

MDM

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #15 on: September 14, 2018, 09:23:52 PM »
Yep found it,
 How about SEP contributions?
SEP contributions could be included in row 48, Traditional IRA.  Note that no check is made to enforce compliance with the various IRS rules on IRA, 401k, HSA, etc. contributions, so having a number >$5500 there will work.

Quote
And where does my healthcare insurance deduction go?
If pre-tax cafeteria plan, in row 4.  If post-tax, in row 113.

If Self-employed health insurance deduction, perhaps row 47? 

Quote
Cell B72 has $6,434 in it, I don't know why, zeros in 68 thru 71?
Row 72 is your after-tax income.

BTDretire

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #16 on: September 15, 2018, 06:10:40 AM »

 How about SEP contributions?
Quote
SEP contributions could be included in row 48, Traditional IRA.  Note that no check is made to enforce compliance with the various IRS rules on IRA, 401k, HSA, etc. contributions, so having a number >$5500 there will work.


  Will it calculate properly if I add my max IRA and Max SEP contributions and put the sum in row 48?
I find this, "You can contribute up to 20 percent of your "adjusted net earnings" from self-employment to a SEP"
What line is my "adjusted net earnings"?



Quote
Cell B72 has $6,434 in it, I don't know why, zeros in 68 thru 71?
Quote
Row 72 is your after-tax income.

 Oh, sorry, I see it now, that is a monthly number.

MDM

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #17 on: September 15, 2018, 09:58:26 AM »
Will it calculate properly if I add my max IRA and Max SEP contributions and put the sum in row 48?
I believe so.

Quote
I find this, "You can contribute up to 20 percent of your "adjusted net earnings" from self-employment to a SEP"
What line is my "adjusted net earnings"?
Don't know - haven't had this question before now. ;)

If you can find a definition for "adjusted net earnings" we may be able to determine what existing line fits this, or perhaps add a calculation for it.

BTDretire

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #18 on: September 15, 2018, 12:48:41 PM »
Will it calculate properly if I add my max IRA and Max SEP contributions and put the sum in row 48?
I believe so.

Quote
I find this, "You can contribute up to 20 percent of your "adjusted net earnings" from self-employment to a SEP"
What line is my "adjusted net earnings"?
Don't know - haven't had this question before now. ;)

If you can find a definition for "adjusted net earnings" we may be able to determine what existing line fits this, or perhaps add a calculation for it.
I don't know where that page is but, it was not accurate.
Here is a pdf by Fidelity that gives me the same answer that is on my 2017 1040. I'm assuming no change in 2018.
https://www.fidelity.com/bin-public/060_www_fidelity.../SEP-cntrb-wksht.pdf
Please see the last 5 words of the last sentence and help me make any sense of it.
EDIT, I can't read my picture, but if you click on SEP.jpg it's easily readable.
« Last Edit: September 15, 2018, 12:51:07 PM by BTDretire »

BTDretire

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #19 on: September 15, 2018, 01:49:00 PM »
Cell G23 gives me a $400 Savers Credit, what triggered that?
 I do have an HSA, SEP and IRA.
 I figured it out, an 'HSA' (cell A45) will trigger the savers credit (cell G23)
and also 'alimony paid' (Cell A47) will trigger the 'savers credit'.
 I put my SEP in 'alimony paid' (Cell A47)  it doesn't alter the savers credit but would, if I didn't already have
the HSA.
 That's a note to self and others.

I'm disappointed, I can get down to $1,129 Federal tax but I can't add any LTCGs in the 0% tax bracket.
 They start at 15%!! EDIT 15% >>> WRONG, it is closer to 1.5%. My error reading my calculator.
 If I add $60,000 of LTCG, the spreadsheet only adds $1,223 tax, or 2% on $60,000. Seems like it should add 0% or 10% or 15%, not 2%.
  Doesn't seem right, MDM, if you are interested, private message me and I'll send a copy for you to look at.
« Last Edit: September 15, 2018, 02:14:42 PM by BTDretire »

secondcor521

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #20 on: September 15, 2018, 04:06:55 PM »
If I add $60,000 of LTCG, the spreadsheet only adds $1,223 tax, or 2% on $60,000. Seems like it should add 0% or 10% or 15%, not 2%.  Doesn't seem right, MDM, if you are interested, private message me and I'll send a copy for you to look at.

Probably a weighted average.  $51850 at 0% plus 15% of $8150 or some such.

MDM

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #21 on: September 15, 2018, 05:05:29 PM »
If I add $60,000 of LTCG, the spreadsheet only adds $1,223 tax, or 2% on $60,000. Seems like it should add 0% or 10% or 15%, not 2%.
  Doesn't seem right, MDM, if you are interested, private message me and I'll send a copy for you to look at.
I'd be happy to look at it - you could save it to a Google Drive and PM the URL.

I'm guessing, however, that secondcor521 guessed correctly.  You could check this by the following:
- put D27 in cell G106.
- click the "Update chart" button near cell L113.
- put 200 in cell P82
- Look at the chart above cell G106: is the marginal rate for LTCGs zero for most of the dollars below $60,000?

MDM

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #22 on: September 15, 2018, 05:09:29 PM »
Cell G23 gives me a $400 Savers Credit, what triggered that?
 I do have an HSA, SEP and IRA.
 I figured it out, an 'HSA' (cell A45) will trigger the savers credit (cell G23)
and also 'alimony paid' (Cell A47) will trigger the 'savers credit'.
 I put my SEP in 'alimony paid' (Cell A47)  it doesn't alter the savers credit but would, if I didn't already have
the HSA.
 That's a note to self and others.
See cells U53:W63 for the Form 8880 (aka Saver's Credit) calculations.

BTDretire

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #23 on: September 15, 2018, 05:54:06 PM »
If I add $60,000 of LTCG, the spreadsheet only adds $1,223 tax, or 2% on $60,000. Seems like it should add 0% or 10% or 15%, not 2%.  Doesn't seem right, MDM, if you are interested, private message me and I'll send a copy for you to look at.

Probably a weighted average.  $51850 at 0% plus 15% of $8150 or some such.

Ok spreadsheet filled out with self employed income LT and ST gains, HSA, SEP, IRA, taxable interest, divi, etc.
Cell D27 is LTCGs I put in the following values and got the Federal tax shown.


LTCG----FED Tax
  $0k-----$1214
  $11,825---$1214   = 0% on the addition $
  $11,830---$1614   $400 tax on $5 more??
  $20k---$1614   
  $30k---$1614   
  $40k---$1614   
  $50k---$1614
  $54,065---$1614
  $54,070---$1615
  $60k---$2504   

 \_(ツ)_/

Just read your next post before I posted this, If you can make sense of the numbers above let me know. otherwise I'll figure out how to save to google sheets and send you a PM.
 






MDM

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #24 on: September 15, 2018, 07:52:04 PM »
  $11,830---$1614   $400 tax on $5 more??
Probably losing eligibility for a saver's credit tier.  Saver's credit tiers are based on AGI, regardless of whether the income is ordinary or LTCG.

Quote
  $54,065---$1614
  $54,070---$1615
  $60k---$2504   
Reaching the point at which LTCGs become taxable?

BTDretire

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #25 on: September 16, 2018, 06:04:35 AM »
  $11,830---$1614   $400 tax on $5 more??
Probably losing eligibility for a saver's credit tier.  Saver's credit tiers are based on AGI, regardless of whether the income is ordinary or LTCG.

Quote
  $54,065---$1614
  $54,070---$1615
  $60k---$2504   
Reaching the point at which LTCGs become taxable?
Oh, very good sleuthing, thanks for your input.
I'll need to check all my income numbers again at the start of December,
but it looks like I can realize about $54,000 in LTCGs and only pay $400 additional tax or 0.8%.

 Is there any line for a Roth conversions or would that just go in Cell D31 'tIRA distributions'?
If yes, I could do a $50,000 Roth conversion paying 10% tax and take a $20,000 LTCG
and pay 4% tax, or $30,000 at 7% or $50,000 and pay 10% tax.
 Your thoughts?

EDIT for additional question.
 I just checked and about 55% of the money in my regular savings (not tax defered) is Long Term Gain.
So, am I correct that I could withdraw $100,000 and show $55,000 of LTCGs in Cell D27.
 Seems obvious, but I have never taken money out of my regular saving at Vanguard.
                                                 Thank you
« Last Edit: September 16, 2018, 10:11:03 AM by BTDretire »

MDM

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #26 on: September 16, 2018, 10:37:06 AM »
Oh, very good sleuthing, thanks for your input.
I'll need to check all my income numbers again at the start of December,
but it looks like I can realize about $54,000 in LTCGs and only pay $400 additional tax or 0.8%.

 Is there any line for a Roth conversions or would that just go in Cell D31 'tIRA distributions'?
Yes, cell D31.
Quote
If yes, I could do a $50,000 Roth conversion paying 10% tax and take a $20,000 LTCG
and pay 4% tax, or $30,000 at 7% or $50,000 and pay 10% tax.
 Your thoughts?
See below.

Quote
EDIT for additional question.
 I just checked and about 55% of the money in my regular savings (not tax defered) is Long Term Gain.
So, am I correct that I could withdraw $100,000 and show $55,000 of LTCGs in Cell D27.
Yes.

Interesting effect of the QBI 20% deduction: because your QBI deduction is limited by your taxable income, your marginal rate for a particular income is the "normal" marginal rate for that income minus 20% of the ordinary income marginal rate.  E.g., when your ordinary taxable income is in the 10% bracket, and the total taxable income is in the 0% LTCG bracket, your marginal rates are
  • ordinary income = 8%
  • LTCG income = -2%
Yes, that's a negative marginal tax rate on LTCG income, meaning (within the assumed income limits) the more LTCGs you realize, the less you pay in federal income tax.

But before you take a bunch of LTCGs in this situation, it may (or may not) still be better to do traditional->Roth conversions at these low rates.  Depends what rates you will incur in future years.  See the '0% LTCG or t->R' tab in the spreadsheet for a back-of-the-envelope estimate.

The choice of taking LTCGs or doing t->R conversions is between two good options, so you could just flip a coin....

BTDretire

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #27 on: September 16, 2018, 02:10:33 PM »
Thanks for all the info.
  I'd really like to start Roth conversions, but I'll be needing some cash soon to pay my daughters
dental college tuition, $35k to $40k in January and again in June.
 So maybe in the future I can do Roth conversions.
Did you get to open my Google sheets, just wonder if I ever got it authorized for you.

 Thanks for all your help, I may have more questions as we get closer to the end of the year.
  I wasted several years not taking my LTCGs, the last 6 or 7 years I was in approximately
the same tax situation, (except for QBI).

Slow&Steady

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #28 on: October 23, 2018, 11:27:30 AM »
Does anyone want to humor me and dumb this all down a lot, using a round number scenario?

Assume:
LLC: $50k QBI (revenue-expenses)
Rental: -$20k (major required repairs this year)
W2 Gross: $70k

401K Contributions: $6k
Roth IRA: $5.5k

4 kids, 2 adults, standard deduction

MMbergmann

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #29 on: October 23, 2018, 12:31:49 PM »
Does anyone want to humor me and dumb this all down a lot, using a round number scenario?

Assume:
LLC: $50k QBI (revenue-expenses)
Rental: -$20k (major required repairs this year)
W2 Gross: $70k

401K Contributions: $6k
Roth IRA: $5.5k

4 kids, 2 adults, standard deduction

Assuming the two adults are married, children are under 17, and that you could really deduct the 20k of rental loss (I am thinking you maybe couldn't because some may have to be depreciated), the following is what I believe would happen with the new tax law. Disclaimer: this is not tax advice.

LLC 50k profit
Rental -20k loss
W-2 Wages 70k
401k deduction -6k
AGI 94k
Standard deduction -24k
taxable income 70k
QBI deduction (lesser of taxable income or QBI, so 50k (QBI from LLC) x 20%) -10k
taxable income after QBI deduction 60k
tax (1,905 + 12% of the amount over 19,050) 6,819
I'll leave the child credit part to someone else

Slow&Steady

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #30 on: October 23, 2018, 02:45:44 PM »
@MMbergmann thank you and disclaimer acknowledged.

I was assuming that is how it worked but I was hoping somebody would confirm without me messing it up by trying to explain what I thought.  I have not been able to get the spreadsheet to open for me to use our real/estimated numbers so I appreciate the explanation.

MDM

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #31 on: October 23, 2018, 04:08:18 PM »
@MMbergmann thank you and disclaimer acknowledged.

I was assuming that is how it worked but I was hoping somebody would confirm without me messing it up by trying to explain what I thought.  I have not been able to get the spreadsheet to open for me to use our real/estimated numbers so I appreciate the explanation.
Are you trying to use Excel or some other spreadsheet program to open the file?  Excel does work better than Sheets, LibreOffice, etc.

Other than subtracting 1/2 of the SE tax, the spreadsheet gives the same numbers as MMbergmann's note.  If all children are <17, the spreadsheet has the IRS owing you $1,365 due to the child tax credit.

Slow&Steady

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #32 on: October 24, 2018, 07:25:22 AM »
Yesterday I couldn't get it to open at all but I tried again today and it came right up.  I did download it to open in Excel because I am more comfortable using that.  Now I cab play around with it, when I get some free time.

Thank you for spending the time to create this, it looks very detailed!

One of the kids is over 17 but hasn't graduated yet, I guess that doesn't matter.

MMbergmann

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #33 on: October 24, 2018, 08:35:10 AM »
Also as a note, I assumed his LLC was an S-corp (since he also had wages), thus why I didn't do anything with SE tax.

Slow&Steady

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Re: QBI Pass-through deduction in the case study spreadsheet
« Reply #34 on: October 24, 2018, 12:05:14 PM »
Also as a note, I assumed his LLC was an S-corp (since he also had wages), thus why I didn't do anything with SE tax.

W2 wages are from non-LLC spouse.  However, I understood that I not only didn't give you a complete picture, you were also not giving complete tax advice so your original response still answered my question of explaining the pass-through deduction.