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Qualified Business Income (QBI) Deduction

How to model qualified business income and the subsequent deduction in Scenario Analysis

Many owners of sole proprietorships, partnerships, S corporations, and some trusts and estates may be eligible for a qualified business income (QBI) deduction – also called the Section 199A deduction. The deduction allows eligible taxpayers to deduct up to 20 percent of their QBI, plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.

The type of business income modeled in the scenario will impact the data entry needed to model QBI and the subsequent deduction.

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Setting up your Scenario and Clearing the QBID Override

Any scenario created by copying a scenario generated by the original tax return will carry with it any QBI deduction from line 13 of Form 1040 as reported on the return. This deduction will show in the QBI Deduction (Calculation Override) field as outlined below. Clear the override by deleting the amount shown in the field, leaving it blank. Continue to update the scenario for current year income information. Instructions on clearing overrides can be found here.


QBI-New

Once the QBI Deduction (Calculation Override) field is clear, review the instructions below for any necessary adjustments needed to model the deduction based on the business income in the scenario.

 

Schedule C Only (Single Business):

QBI and the QBI Deduction arising from a Schedule C business activity are calculated automatically based on the data entered in the Schedule C Worksheet. To model Schedule C business activity, review our article on Modeling Different Business Structures - Schedule Cs, Partnerships, and S-Corps.

QBI-C


 

Schedule E Only (Single Business):

For income entered in the Schedule E Worksheet (for example, from an S-Corp), the system cannot currently calculate the amount of income that is considered qualified business income for the purposes of the deduction. This is due to the variety of income reported on Schedule E, some of which is qualified business income and some of which is not. For Schedule E Business Income, navigate to the QBI section in scenario analysis, and expand the Qualified Business Income (Override) section. 

Once expanded, the following information can be entered to calculate the deduction:

  • Qualified Business Income (Override): Enter the amount of qualified business income. Generally, QBI for an S-Corp will be equal to net income from that Schedule E activity, since there aren't any business-related Schedule 1 deductions. If you are unsure how much of the income is considered qualified business income, we suggest using an external calculator to determine the total QBI to enter in the scenario.
  • Allocable Share W-2: Enter the total employee W-2 income (not just the owner's portion) so that component of business income can be accounted for with respect to the QBI Deduction on line 4 of Form 8995-A. 
  • Allocable Share UBIA: Indicate any allocable share of the unadjusted basis immediately after acquisition (UBIA) of all qualified property owned by the business so that it can be accounted for with respect to the QBI Deduction on line 7 of Form 8995-A.
  • SSTB: Make a note if the business entity is a Specified Service Trade or Business (SSTB) by checking this box, if appropriate. Understanding if the business is considered an SSTB is important for the calculation of the QBI Deduction.
In the example below, $65,000 of qualified business income was reported on Schedule E, and the business paid $124,000 of W-2 wages to all employees. The calculated QBI Deduction is $13,000. Note the yellow warning triangle alerting that the system cannot currently calculate QBI when there are income sources from Schedule E or F.

QBI-E2

Keep in mind that since qualified business income is not automatically calculated for Schedule E income, any adjustments made to net income on Schedule E in the scenario may require an update to the qualified business income amount entered above.

 

More information on modeling S-Corp and Partnership Income is in our knowledge base article, Modeling Different Business Structures - Schedule Cs, Partnerships, and S-Corps.

 

Multiple Business Entities (a mix of two or more businesses with qualified business income)

QBI and the subsequent deduction are calculated for each business entity separately, and the amount of QBID per business is then added together. Holistiplan does not currently support the calculation of the qualified business income deduction when there are two or more business entities. This could be a mix of Schedule C and E businesses, or two or more Schedule C or Schedule E businesses.

For these instances, calculate the total QBID using Form 8995-A, and enter the amount of deduction in the QBI Deduction (Calculation Override) field.

In the example below, the calculated amount of QBID per Form 8995-A is $10,255. Entering the amount in the QBI Deduction (Calculation Override) field will show an alert that the override field is in use as indicated by the red exclamation point icon at the top of the scenario.

QBI-O

 

REIT Dividend / PTP Income, and/or DPAD under 199a(g)

QBI from REIT (Real Estate Investment Trust), Dividend Income/PTP (Publicly Traded Partnership Income, and/or DPAD (Domestic Production Activity Deduction) under 199a(g) should be entered in the respective fields outlined below.

QBI -REIT