Qualified Business Income Deduction questions

[Zoot]

Hi, guys--I'd love to get some feedback from the group regarding the Qualified Business Income Deduction (QBID).

My specific situation:

• I have royalty income as a songwriter, reported to me on a 1099 from the publishers
• DH has income for writing computer software, also reported to him on a 1099
• We have been reporting this income on Schedule C and filing Schedule SE
• We both have W-2 jobs from other companies/organizations in addition to the 1099 income
• The W-2 jobs are in trades unrelated to the 1099 income (I work a desk job in supply chain, DH is a teacher)
• We are under the income limitation of $315,000 for married-filing-jointly

My belief based on some admittedly cursory online research is that this income can qualify for the Qualified Business Income Deduction.  I had wondered whether the "performing arts" exclusion might apply to the songwriting stuff, but apparently it is specific to performance and not to intellectual property.  Similarly, the exclusion for "reputation or skill" was explained in IRS guidance to specifically refer to things like celebrity endorsements.

What are your thoughts on my interpretation in my specific situation, and how are others using the QBID in their own situations with side hustles?

I am not a tax accountant, and nothing in this post is to be construed as tax advice.  :)

[oldmannickels]

If you are under the $315k, the SSIB limits don't apply, so the performing arts exclusion doesn't matter.

[walkwalkwalk]

It won't matter for you, but for possibly others below 315k, the lower limit is taxable income, so if a substantial portion of your income comes from QBI, then if your itemized deductions are high enough then it will be limited by AGI less itemized deductions, otherwise known as taxable income before QBID.

[MDM]

If you are under the $315k, the SSIB limits don't apply, so the performing arts exclusion doesn't matter.

+1

Under that limit, it is reasonably straightforward.  Any of the usual commercial tax software should handle it easily.

If you don't yet have access to a commercial tool, the case study spreadsheet should provide a good estimate.

[Zoot]

Thanks for the clarification about the SSIB not applying when overall income is less than the specified maximum for filing status.  I had skipped over that provision, as I immediately started looking at possible reasons the deduction might not be available.

Looks like I have a new deduction to factor in to my tax planning spreadsheet!  :)

[SeattleCPA]

Thanks for the clarification about the SSIB not applying when overall income is less than the specified maximum for filing status.  I had skipped over that provision, as I immediately started looking at possible reasons the deduction might not be available.

Looks like I have a new deduction to factor in to my tax planning spreadsheet!  :)

I think there's a potential error or imprecision in this comment and in some of the comments above.

The starts of the phase-out ranges for SSTB and also for W-2 wages and depreciable property begin at taxable income of $157,500 for single people and at taxable income of $315,000 for married folks.

E.g., married taxpayers, earning their $515,000 of income totally from an SSTB, qualify for the full deduction even as professionals if they have $200K of deductions for pensions, mortgage, charity etc.

Also, some other FYIs, we're seeing a number of areas where people (to this point, tax accountants) are struggling with the new deduction:

https://evergreensmallbusiness.com/section-199a-qualified-business-income-deduction-danger-zones/

Also, curiously and disturbingly, the draft instructions for Section 199A don't seem to match the proposed regulations--and suggest the final regulations (available in a few weeks?) will be less taxpayer friendly:

https://evergreensmallbusiness.com/irs-pub-535-section-199a/

This is pretty far into the weeds, but some of us tax nerds are beginning to talk about whether we file returns for 2018 using the possibly taxpayer-friendly rules in proposed regulations or wait for the final regs or think about doing analyses of proposed vs final regulations for people.

A general warning to people who have their returns prepared by CPAs, etc. You probably want to either turn your stuff in earlier and/or cleaner... or accept an extended return if you turn stuff in late or needing cleanup.