Gosh I'm just starting REG and this was on one of the first chapters for Becker. Totally unclear, they rush through it. So grateful for this video! Thanks!
Thank you so much for breaking this QBID down for us. I am a visual learner so just reading it in a tax course is not going to get me to retain the information. I need examples!! Great content!
Thanks for such great video on 199A, this was my first experience with your channel and enjoyed it. It is very easy to assimilate and you keep us awake unlike other so called instructors. Again thanks a lot and I look forward to going thru your entire set of videos over time.
C Baez, hows it going sir? Thanks so much for the support. I try my best to make this technical jargon more fun to learn. I'll be making a lot more videos on taxes, finances, investing, etc throughout the year so stay tuned :)
Definately will have to keep studying on this tax deduction calculations thanks for simplifying as much as possible this is great!! Will be rewatching the 1st and this part until I am able to understand this calculation methods.
Hi Maria! Happy to hear you enjoyed the video. I think I took like 3 or 4 classes on this stuff before any of it started to make sense. I believe it takes some self-study to really make it sink in. I found reading a Forbes article by Tony Nitti helped as well. To be honest i'm still learning some of this stuff haha. Here is the link to the Forbes article which seemed to help me a lot with the initial understanding of things: www.forbes.com/sites/anthonynitti/2018/08/09/irs-provides-guidance-on-20-pass-through-deduction-but-questions-remain/#4b76362a2ff8
Hi, I love this video to understand better this concept. I’m actually taking a federal tax course and would like that you explain this topic with the new amounts $$ the IRS requires for this year 2023. Anyways this helps me a lot to apply the concepts.😊
Links and Downloads If you missed Part 1 of this series you can check it out here: ruclips.net/video/P483VTg56Lw/видео.html The downloadable excel document can be found here: www.dropbox.com/s/36phs8rgsidw075/199A%20calculation%20examples%20%28protected%29.xlsx?dl=0 The downloadable word doc handout can be found here: www.dropbox.com/s/k55x8s0lxfexyql/199A%20Handout.docx?dl=0 2018 busines tax rules explained:ruclips.net/video/eAkx_6kaOE8/видео.html
You did just fine. This was far more effective than my prof, who I am paying $1200 a quarter for. For constructive feedback, I would add that some of the graphics and humor do more harm than good to someone with a limited attention span like myself. The more you can stay in one place, the better. Your speaking and explanation is great and this is all pretty simple. Thank you for your help.
On the contrary, I think your humor is right on and delightful. You kept me watching to the end of your video. Words or topic associations STB...STD as bad is effective & easy to remember otherwise tax info is known to be such a boring topic. You're creative & fun teacher.
I understood just fine! I'm not a business owner but I have referred your video to someone that is. You made those calculations seem fairly easy to understand. Thank you for going with your gut on the 2:34 mark and already sensing the future confusion we were just beginning to experience lol
Well, my head has stopped spinning and I understand a little more than I did yesterday. Thanks for the great presentation. I simply don't know why your head didn't explode while you were researching this.
R B Arnold hows it going man? Every-time I studied this stuff I felt like I had to have alcohol nearby to take the edge off haha. Lots of aspirin got me through this presentation . I spent way too much time studying this stuff. Thanks for your feedback I really appreciate it.
Great video! I am in the Financial Services and we just had a class on an over view of this strategy. This gave me a better understanding of what clients this may help... Also are you familiar with IRC 162 and how to leverage it for business owners?
Thank you Mr Anglada! I greatly appreciate the support. Even though tax season is over i'll still be making some new tax related videos throughout the year as well as many other videos so stay tuned :)
Thank you Mike, you helped me understand this topic for my CPA exam. I can now get the MCQs right. And for someone who asked is there anymore updates for 2019, Yes, the threshold limits are $160,700 to $210,700 for 2019 [$157,500 to $207,500 for 2018]
@@MoneyandLifeTV Hey Mike I passed REG in Q4 19. Thank you so much, you have helped a lot. Now I am through BEC and this is my last session. Thank Mike, I loved your videos and sorry for the late reply
Thanks so much for your support on this series everyone. More importantly…thank you for helping this community grow to over 11,000 subscribers strong! I really appreciate you Crushing that like button like you have been doing so this information can reach more people. This one is a long one so I’ve included time stamps to help you navigate the video. Make sure you watch Part 1 first before watching part 2. Think of this like a free class on the 199A deduction.
Does can this deduction be taken by a 1099 contractor (I get paid 1099 and I am a healthcare professional operating as sole proprietor(llc).by the way make below 150k annually..thanks
Ed A are you a single member LLC reporting on a Sch C? Then yes! Sounds like you are a service type of business, so pay attention to what he says about being in the business of providing services if that is your case.
Hey Mike, 🎉HAPPY NEW YEAR to you and your FAMILY🎉 and CONGRATS for your 11,000 subs. I remember when you used to have only 1,000 and I had only 2, now, You gain 10,000 more and I gain 3 more 🤣 THANK YOU for taking the time on creating this type of videos and sharing your knowledge.
Happy Temp thank you so much! I seriously cannot believe how much the channel has grown this year. I think on Jan 1 of this year we were at 800 subscribers. Happy new year to as well. I hope you and your family have a great time. I still have a few more days off so I'm looking forward to it :) Always happy to produce educational content for you guys. Its a lot fun. Here's to 2019 🍾🍾
Time Stamps: •Example 1 (Simple) - Calculation for a non specified service trade or business taxpayer (No capital gains) - 2:20 •Example 2 (Simple) - Calculation for a non specified service trade or business taxpayer (WITH capital gains) - 6:50 •Example 3 (intermediate) - Calculation for a Specified Service Trade or Business taxpayer (no capital gains) Income is between the phaseout limitations - 8:22 •Example 5 (Advanced) - Calculation for a NON Specified Service Trade or Business taxpayer (no capital gains) Income is above $207,500 - 15:39 Aggregation of multiple businesses - 24:00
Thanks so much for the info. Im co-owner in a partnership moving company. ownership is a 60/40 split, but we pay ourselves based on hourly work we do for the business. I really am not sure if what we pay ourselves is considered a guarantee payment or pass though. Payment isn't always 60/40 because it depends on how much hours of moving each of us does that week, but i don't think its guarantee, because if we don't get moves, we don't get paid. any advice?
I am an S. Corp and think I know understand how to figure my QBI deduction, but my question is... I also have a rental property and would like to apply for the deduction to rental income. Would I enter the rental income QUBI deduction info as if it were another business? I don't think I would add the rental income to my S. Corp? Please advise. Thank you again for the valuable content you pour into your viewers, you have no idea how much your videos have helped me. You are a #DifferenceMaker
Thank you Tucker for the support. I'm assuming the rental is outside of the S-corp? If you feel it rises to the level of a trade/business based on your involvement in the property then yes you can count it as part of your overall QBI deduction. If the rental is not held by the S-corp then you would not add the rental income to your S-corp income. Think of them as two totally separate entities which it sounds like they are in your case. Hope that helps.
Thanks Sarah! Just sharing as much as I can at the moment. I still feel like I don't know many pieces of it, because it is so complex, but at least I feel like I have a good handle on the basics.
This is the best video I have seen on this topic. I was hoping you might offer or clarify a situation that is never described in examples. At least not plainly. I believe this is a realistic situation for may. Scenario: Peter has an LLC that has elected S-Corp tax status. He is single. Peter earns 200K in Gross Business Income. Peter pays himself $100K in a salary. Peter has $10K in other business expenses. Is this correct: NET QBI = (200K-100K-10K) or (90K) NET TAXIBLE INCOME = (200K-100K-10K) - (standard deduction) = ?? In my mind, and in this scenario: Net QBI = Net Taxable Income, without there being other things that drive down the taxable income.
Hi I am intractable. Although It is impossible for me to give you precise numbers it sounds like you are on the right track. The QBI deduction is the lesser of 20% of QBI or taxable income. To calculate your taxable income you would need to take into account the standard deduction. Your taxable income would be (100K Wages + 90K business income - standard deduction of 12K) or 178K roughly speaking......it sounds like you would take the lower of QBI in this example. I would expect your QBI deduction to be 90Kx20% = 18K roughly speaking. There might be some other limitations but I would think your QBI deduction in this example would be between 10K - 18K. It has been awhile since I looked at the spreadsheet now, but that is what I would expect. Hope that helps.
Thanks for the clear explanation Mike! If the only W-2 wages (S-corp) are paid to the owners in a Non SSB...can 50% of W-2 wages be deducted when income level exceeds phase out?
Hi MM great question. I believe the officer/owner wages would still count to the best of my knowledge. You might do an online search as well to clarify but I think the answer is yes.
Great Video. Will keep in favorites for constant review. Here's the big question. What was the logic, step by step for the lawmakers in coming up with this? I understand the rules, It just seems so Strange to say for an SSB we will use a phaseout percentage based on taxable income, but for a non SSB we will use a formula that includes Wages and Capital Assets. why?!!! who dreamed this up? I like knowing the why.
@@MoneyandLifeTV I have been reviewing this video daily to wrap my head around it. My CPA course didn't do a very good job (you did better), and the tax software at work pretty much figures it out.....But I still want to know why. Probably some weird compromise between different politicians that were moving the ball up and down the field. Then, in the end you have a masterpiece of strangeness.
Hi Rona, yes, the QBI should pass-through to the shareholder. The only time where I think it wouldn't is if the business was a specified service business.
This is excellent! I have a question though. If the business is qualified service business and the shareholder got a W2 for lets say 5k, the total income from the business is 25k, what would be the QBID? Total income for the tax payer is below the phase out for a single filer. I’d appreciate your help.
Hi Muneeb thanks for asking. In this very general example you are proving above if the person's net business income was less than their total taxable income than their QBi deduction would be roughly $5,000 (25,000 net business income x 20%) =$5,000 Hope that helps.
CPA Mike - What's your opinion on investments rental property as it relates to QBI, I self manage several rentals and I'm active in the business. I've been told that for rentals (Sched E filing), I don't need to issue 1099's. Now, with the QBI designation I'm getting mixed feedback some stating still no need for a 1099 while others say if I'm going to consider myself a professional and take the QBI deduction then I should be issuing 1099's. I appreciate your opinion.
Good question re: 1099's. There are circumstances whereby you may operate rentals ,but do not actually have a requirement to file 1099's. It just depends on who you pay. Think of 1099's and QBI as two separate things. The real way to answer that question is view the 1099 instruction filing requirements and determine if you meet those filing requirements. www.irs.gov/pub/irs-pdf/i1099msc.pdfwww.irs.gov/pub/irs-pdf/i1099msc.pdf
Hi Mike, Thank you for this video and spreadsheet, very helpful. Quick question please, in example #3, you use the higher Net Business Income for the deduction calculation. However, using the lower Taxable Income amount in the calculations results in a lower QBI deduction at the end. This is ok to end up with a higher deduction? Thanks for the help-
For 2022, single farmer had a net profit from the farm of $96,550 (after factoring in the self-employment adjustments to his income). He has no loss to carry forward from prior years. his taxable income, before applying theQBI deduction, is $147,966 What is the QBI deduction?
My brother and I are a 1065 taxed as an S-Corp and we draw a wage but also pay out wages to employees, what do I use to calculated the credit on my personal tax return?
Hi Karrissa, for the calculation all wages are taken into account including the wages you paid yourself. Is your income above the phaseout amount of $315,000 if married filing joint? If your total taxable income is under the phaseout thresholds mentioned in the video though than you need not worry about factoring in wages. You can simply calculate it based on the lower of 20% of your net business income or the lower of your taxable income. I'm hoping you are using computer software to help you prepare your return. I do not recommend preparing this calculation by hand. I hope that points you in the right direction. Certainly rewatch the video if necessary and part 1 to get a better grasp of the rules. I had to try to learn this stuff multiple times before proceeding, and i'm still learning new aspects re: the deduction.
Hi Parker, thanks for asking. At this moment In time I do not. Unfortunately With multiple passthrough entities the calculation becomes extremely complex. So complex I could not do it justice in a simple video and explain it in a way that I think people would understand. Having tax software or a good accountant to help you with this will be worthwhile.
@@MoneyandLifeTV I am currently completing my Masters in Accounting, and was assigned this type of problem as homework, and the Professor has said he is not answering any questions for this assignment. Any thing to help point me in the right direction would be great! Thanks.
Good Afternoon, Thanks for a great video. I think I'm hung up on one thing. In example 5, step 2 goes off of QBI = $290K and step 3 goes off of Taxable income = $260K. Maybe I'm not understanding the diff between QBI and Taxable Income. Is QBI always higher than Taxable Income? If so, why would there be a step 2 or 3 vs. always use Taxable income vs. QBI? Thanks in Advance.
It is my understanding that Schedule C (Line 31) profit must be reduced by 1/2 Self-employment tax + Self-Employment Health insurance Deduction + IRA contributions
Say someone does a service trade and has a W2 + a 1099 (which is filed as a sole proprietorship). Does the W2 salary, independent of the business 1099 salary, affect the QBI deduction?
Great question, if the salary is different from the business than it would not affect QBI. However, if the salary is coming from the same business then it would factor in in relation to the QBI deduction.
Hi Angelita, i'm assuming you are referring to the normal business expenses? If so, yes those are all deducted before QBI deduction is taken into account.
Very informative video, thanks so much. Question for ya: at 15:13 so you're saying instead of using the lesser of the two (which in this case is 200k taxable income), Chipper has to use the revised QBI $33,750 to calculate the 20%?? Is it just because he is a SSTB? or because he is over the income limit for QBID? or is it both? What if he is over the QBID income limit but NOT an SSTB? Also, how does the SEP IRA play into this? Would contributions to your SEP IRA reduce either your taxable income or your QBI? Would appreciate your help!!
It just seems so horrible that his total to calculate the QBID went from 200k to 33,750... He might as well have made less than 200k.. ie. 157k so he could qualify for a larger QBID
Hi Daniel fantastic questions. Re: your questions. 1. Yes, Chipper has to used the revised QBI amount of $33,750. 2. It is a bit of both because he is in a specified service trade or business AND his income above the limit. 3. Good question on the SEP. The SEP would be an income adjustment on the return. It wouldn't directly impact your net business income and QBI, however, it would reduce your overall taxable income which could impact how you calculate QBI.
Can you do a simple example with an attorney (SSB), MFJ, whose net QBI is 290,000 and whos taxable income before the net QBI is 326,000.00. Would the phase out apply? The Net QBI (290k) is less than the phase out of 315k, does this mean he/she gets the full 20% QBI Deduction off the 290k?
Hi Pee Reevs, because your total combined income is $326,000 and you are in a specified service business unfortunately you would not able to take advantage of this deduction for 2018 because the maximum phaseout is $315,000. $0 benefit for 2018, but they will keep increasing the phaseout income limitations each year so maybe you would qualify for 2019 to get a partial deduction if your income remains about the same.
@@MoneyandLifeTV because the income did not exceed $415,000 which is the max amount a married filing joint couple can make before no 199a deduction is applied, shouldn't you then proceed as an example three where chipper was $42,500 into the phase out and when you divide that by the 50,000 you get an 85% rate at which you use to calculate. so if you apply that same Theory to this example, $326,000 is $11,000 above the income limitation of $315,000 for married filing joint, and if you divide $11,000 by $100, 000 which is the range of the phase-out range for MFJ you get 11%. 11% of $290,000 qbi is $31,900 what you then subtract from $290,000 to get $258,100. you multiply that by 11% to get $28,391. That's copying example 3 step by step. Now we could avoid all of this if their total taxable income was above $415,000 no?
Great explanation! I think I have it figured out, but got a little confused when you talked about aggregation. My husband and I file MFJ, I am a self employed accountant consultant and have Net Income of $63K from that and we have an LLC that holds rental property with net income after depreciation of $5K but we sold a rental property for a cap gain of $7K. I come up with a QBI deduction of about $3K. Sound correct?
Hi Bziviski, thanks for watching i'm glad you enjoyed the video. To be honest this deduction has so many factors involved it is not possible for me to know whether or not your calculation is correct unless I had your full tax return in front of me with all of your records. However, based on your numbers 3K sounds kind of low. You should be getting either 20% of your net business income or 20% of your taxable income minus capital gains. I would think your QBI deduction would be between 5,000 to $10,000 but like i said it is impossible for me to know. You might consider consulting with a CPA in your area, or figure out how the software (assuming you are using software) is arriving at that $3,000 amount.
How do the calculations change if you are married with a spouse that's a w-2 employee? Do I just take my net on my schedule minus the 1/2 SE tax deduction, SE health insurance deduction, and employer retirement contributions and then multiply the 20%? For example, my net income of $9,773 minus the 1/2 SE employment deduction puts me at $9,082. Would the 20% deduction be $1,816? or do I get the full deduction of $1955 because my wife has a w-2 income of $46,471? I'm a little confused.
Hi Aaron, great question, follow the schedule C form and whatever your net # is after deductions that is the number you want to use for the QBI Calc. I obviously can't verify your numbers over RUclips, but it sounds like you would use the $9,082 in this particular case from what you are describing above. Wages would not have an impact on the 20% deduction unless your total income is above $315,000. If your income is less than $315K you could still get the full 20% of your net business income. However, there are limitations: the 20% deduction is limited to the lesser of Net QBI OR Taxable income reduced by capital gains but before QBI deduction. Hope that clarifies things a little more.
@@MoneyandLifeTV thanks that makes more sense now. Just to clarify, we do have to subtract the 1/2 self employment tax before figuring out the qbi which would be the 20%, is this correct? If so, in my case above, I would multiply the 20% by $9,082 to get the deduction amount.
Hi Aaron, the self-employment deduction of 1/2 is an "adjustment to income" that shows up on schedule 1 www.irs.gov/pub/irs-prior/f1040s1--2018.pdf. Therefore, since it is not part of the SCH C, i don't believe you would include in your calculation. In other words your QBI # is your net business income, but before self-employment tax. You can do some online research to confirm, but off the top of my head I believe that is how that works. I'm more certain than not.
@@MoneyandLifeTV oh ok. I will look into some more to make sure. The reason I asked the question was because I got the following response from chatting with turbo tax. The IRS released the Final Regulations that clarified that (1) the 1/2 SE tax deduction, (2) Self Employed Health Insurance deduction, and (3) employer retirement contributions need to be subtracted from your business profit to determine "Qualified Business Income" (QBI) for the 20% deduction.
Hey Mike ! Thank you very much for this detailed explanation I have a solo 401(k) for myself employment business. I Would like to confirm with you to see if I calculated it right. So To calculate my taxable income; use gross income minus business expenses minus my solo 401(k) (Profit sharing and my employee contribution ). Correct?
Hi Jane, I believe you would subtract out the solo 401(K), but I cannot remember off the top of my head to be sure. You might google it to see if that is deductible in the QBI calculation. IRS changed the form now to report he QBI on. The form can be found here: www.irs.gov/pub/irs-pdf/f8995a.pdf and the instructions for it here: www.irs.gov/instructions/i8995a Hopefully the instructions will shed more light on what can be included in the calculation.
Also, because of QBI I highly recommend using tax software if you are not already. These calculations are extremely complex. At least with software you have something to check your numbers against to make sure it looks right.
Hi Gyply, you may be able to take this deduction. As this is business related income. Depends on what your total annual income is and what type of business you do. Most people can get the deduction.
Great video! Have been searching for thorough explanation for a long time! One question - do contributions to your SEP IRA reduce taxable income that is used for the married filing jointly taxable income threshold of $315,000 and $415,000?
Great question Alex, yes, but it depends on where the SEP contributions are made.In instances people deduct the SEP contributions on their business income which of course will impact the amount of their QBI deduction. So in one instance the SEP will help, but it might reduce the QBI deduction depending upon a person's tax situation.
Thanks Ruth! Sometime the link gets broken. Not sure why. Try this : www.dropbox.com/s/36phs8rgsidw075/199A%20calculation%20examples%20%28protected%29.xlsx?dl=0
Ya, I've just gone bald. I had to literally pull out all my hair!!!!! 😱😱😱 Lmbo haha Good info though bru. I'll have to watch both videos again... back to back lol haha
Haha Mr Jules! Hows it going brother! Hope you enjoyed the holidays. This tax subject will make you want to pull your hair out while running over burning coals at the same time lol. Sorry for putting you guys through hell on this one, but I really do appreciate all the support. I shouldn't have any more tax videos that are this complex for a long-time. The rest should be much easier to follow and digest going forward. This just happens to be the most complex new tax subject within the new tax laws. You will have to bill me for the hair loss lol. 😜😂💸
This tax subject and video guarantees hair loss 😂 Watching this video to try to learn this stuff is probably deadlier than watching that video in the movie "The Ring" rofl.
i had my tax done last week, i own just 1 rental house property, my tax planner said that i can't get QBI because i should have a rental property license. is it true? am i eligible for QBI deduction? thanks
Hi Editha, i'm not sure where the rental license requirement is coming from. Never heard of that to be honest. Your rental may or may not qualify for QBI depending upon how involved you personally are in the property. If you do the repairs, are the one managing it, than you could argue that you would qualify, because you are treating at as an active trade or business. Did your rental make money? If not it wouldn't matter regardless if you took QBI or not, because you would get no deduction. Rentals are a very gray area of this deduction. Some people take an aggressive stance and claim they qualify for the deduction and others do not so it just depends. I may do a video later this year on the QBI deduction for rentals.
@@MoneyandLifeTV I own several rental units in southern California in several cities. All these cities require me to get a business license for each rental. I have to pay an annual fee on each property. I don't think this is a requirement from the IRS, but it kind of makes the rental look more like a business in my opinion.
Let's say I have 70k w2 income (from an institution) and 200k llc income from self employment. When calculating qbi, do I factor in my W2 from institution?
Hi mehmet, no only W-2 income that relates directly to your self-employment. Income from a job not related to your business would not count. Hope that helps.
Thanks for these videos! The Excel spreadsheets really helped. I think Example #3 is missing a step at the end, however. Shouldn't the final allowable deduction be $1,012.50.
Hi Josh, thanks for commenting man. I will have to look at example 3. It has been so long since I have looked at the spreadsheet I would need to wrap my head back around it to say if it is one way or the other. If I have a moment this weekend i'll take a look.
Hi Braydon, great question. I'm not 100% sure off the top of my head, but i'm more certain than not that it would qualify. As defined here: Qualified business income is defined as the net amount of qualified items of income, gain, deduction and loss with respect to a qualified trade or business that is effectively connected with the conduct of a business within the United States. Since the gain on the sale of the equipment is connected with the business activity in my opinion it would qualify as QBI. Hope that makes sense.
This is a very complicated question and there is no one answer. It goes like this currently. Section 1245 property sales, which includes most depreciable assets like machinery, vehicles and patents/copyrights, AND recaptured depreciation, -are considered ordinary income--BUT most recaptured depreciation is considered a tax preference item. Generally, these are not considered capital gains. Section 1231 property, which includes land, timber, buildings and attached machinery, when sold at a gain are capital gains BUT if sold at a loss, are considered ordinary income. This is NOT-I EMPHASIZE NOT-an all inclusive explanation. The section 199a law says one thing but title 26 gives conflicting information. Best to be conservative for now.
I wish that you were my accountant because in example #3 above you would have given me a $6750 deduction when, in fact I would have been entitled to only 15% of that or $1013. The reason for this is that you stipulated that the taxpayer in that example is in a specified service trade or business (SSTB). The calculation that you did however was for someone NOT in an SSTB. The two calculations are not the same! When one is in an SSTB AND within the phaseout range you would first do the calculation as if they were not an SSTB. Assume as in this example the the percentage that one is into the phaseout range is 85% (as in this case). This is the reduction from 20% QBI . Lets call this decimal percentage R. So R = 0.85. If one is in an SSTB then the final deduction must be multiplied by 1-R or 0.15 to arrive at the final deduction. So if one is NOT an SSTB the deduction would be $6750. If one IS an SSTB the deduction would be (1 - 0.15)*6750 or $1013. Your mistake is assuming that the reduction facotr for an SSTB and non SSTB is the same when both are in the phaseout range. They are NOT! There is a substantial additional penalty for being an SSTB when in the phaseout range.
Thanks for commenting Rabbit. They've made this new code section way too confusing. The code section around 199A is about 900 pages long last I heard at a tax update conference.
Hey, Mike, great video, I took the advantage of your months study. LOL. Just have one question here. When you calculated phase out percentage, you were using the Taxable Income Before QBD (200,000), but when you calculated phase out amount, you were using the the Total QBD (225,000), I got a little confused, can you have it further explained?
Hi Mohamed fantastic question. Yes there was one update i'm aware of. The IRS released further guidance on 199A for rentals. Can be found here: www.irs.gov/pub/irs-drop/n-19-07.pdf Enjoy :)
Great question aaa. Yes, you can. In that case no QBI deduction sadly. I'm not 100% sure off the top of my head, but I believe the loss may carryforward, but I could be wrong.
No problem. The business will still get a deduction for the wages paid, but will not be able to take the QBI deduction in this case to the best of my knowledge. The loss will most likely carryforward to next year based on the facts you are describing. Think of the loss from the business and the QBI deduction as two separate things. Hope that helps :)
Hi Kandice, great question. Yes, and no. As an owner of the business youur wages would help you get more of a QBI deduction if your income is above the threshold amounts discussed in this video. Of course what your wages would not do is they would not increase your Qualified business income. Of course you still get to deduct your wages from the total business income, but that is totally separate from this whole QBI deduction thing. Hope that helps, and I hope that makes sense.
@@MoneyandLifeTV Hi Mike - Yes, the wages deducted from business income from a P&L calculation. I guess I need to work thru the numbers once I have my K1 schedule. Thank you!
Hi David, thanks for commenting. There are so many more examples I could do haha, but at some point it just gets so complex it is best to see an accountant where you live. This video took about 20 hours to produce so you can imagine how hard it would be to do specific examples by entity type and have it make sense.
This really demotivates investors. So if I choose to invest I not only will be taxed lets say 20% short term but then I lose 20% which would have been credited through QBI so you take massive risk because your investment might go down but if you are lucky and you make money the government will take 40%!
Gosh I'm just starting REG and this was on one of the first chapters for Becker. Totally unclear, they rush through it. So grateful for this video! Thanks!
You're very welcome! Best of luck :)
You will need this for the first simulated exam.
Thank you so much for breaking this QBID down for us. I am a visual learner so just reading it in a tax course is not going to get me to retain the information. I need examples!! Great content!
this is really good. I was studying QBI stuff and got lost totally. Thanks.
Great to hear! Thanks Sunshine.
Thanks for such great video on 199A, this was my first experience with your channel and enjoyed it. It is very easy to assimilate and you keep us awake unlike other so called instructors. Again thanks a lot and I look forward to going thru your entire set of videos over time.
C Baez, hows it going sir? Thanks so much for the support. I try my best to make this technical jargon more fun to learn. I'll be making a lot more videos on taxes, finances, investing, etc throughout the year so stay tuned :)
Definately will have to keep studying on this tax deduction calculations thanks for simplifying as much as possible this is great!! Will be rewatching the 1st and this part until I am able to understand this calculation methods.
Hi Maria! Happy to hear you enjoyed the video. I think I took like 3 or 4 classes on this stuff before any of it started to make sense. I believe it takes some self-study to really make it sink in. I found reading a Forbes article by Tony Nitti helped as well. To be honest i'm still learning some of this stuff haha. Here is the link to the Forbes article which seemed to help me a lot with the initial understanding of things: www.forbes.com/sites/anthonynitti/2018/08/09/irs-provides-guidance-on-20-pass-through-deduction-but-questions-remain/#4b76362a2ff8
Hi, I love this video to understand better this concept. I’m actually taking a federal tax course and would like that you explain this topic with the new amounts $$ the IRS requires for this year 2023. Anyways this helps me a lot to apply the concepts.😊
Studying for the EA exam (SEE). This was a nice help. Thanks.
Links and Downloads
If you missed Part 1 of this series you can check it out here: ruclips.net/video/P483VTg56Lw/видео.html
The downloadable excel document can be found here: www.dropbox.com/s/36phs8rgsidw075/199A%20calculation%20examples%20%28protected%29.xlsx?dl=0
The downloadable word doc handout can be found here: www.dropbox.com/s/k55x8s0lxfexyql/199A%20Handout.docx?dl=0
2018 busines tax rules explained:ruclips.net/video/eAkx_6kaOE8/видео.html
I appreciate this video I've studied many examples and read the IRS publication. Your examples have given me a better understanding!!
You did just fine. This was far more effective than my prof, who I am paying $1200 a quarter for. For constructive feedback, I would add that some of the graphics and humor do more harm than good to someone with a limited attention span like myself. The more you can stay in one place, the better. Your speaking and explanation is great and this is all pretty simple. Thank you for your help.
Beephex1, thanks so much for the feedback. Very much appreciated.
On the contrary, I think your humor is right on and delightful. You kept me watching to the end of your video. Words or topic associations STB...STD as bad is effective & easy to remember otherwise tax info is known to be such a boring topic. You're creative & fun teacher.
That means a lot. Thanks Pat!
Awesome demonstration and breakdown of this very complicated concept! THANK YOU!
My pleasure :)
I had curiosity of 199 A deduction. I saw your two videos for 199 A. They are helped me. Thanks !
Glad you liked them! Thanks for watching Jade
I understood just fine! I'm not a business owner but I have referred your video to someone that is. You made those calculations seem fairly easy to understand. Thank you for going with your gut on the 2:34 mark and already sensing the future confusion we were just beginning to experience lol
Well, my head has stopped spinning and I understand a little more than I did yesterday. Thanks for the great presentation. I simply don't know why your head didn't explode while you were researching this.
R B Arnold hows it going man? Every-time I studied this stuff I felt like I had to have alcohol nearby to take the edge off haha. Lots of aspirin got me through this presentation . I spent way too much time studying this stuff. Thanks for your feedback I really appreciate it.
Thank you! I'm in an online federal tax class and QBI made my head hurt. Your videos took be from "Huh?" To "I get it!"
Glad to hear it! Thanks Susan :)
Great video! I am in the Financial Services and we just had a class on an over view of this strategy. This gave me a better understanding of what clients this may help... Also are you familiar with IRC 162 and how to leverage it for business owners?
Outstanding explanation and examples. Hats off. You gained one subscriber. Your channel is very informative. Keep up the good work
Thank you Mr Anglada! I greatly appreciate the support. Even though tax season is over i'll still be making some new tax related videos throughout the year as well as many other videos so stay tuned :)
Thank you Mike, you helped me understand this topic for my CPA exam. I can now get the MCQs right.
And for someone who asked is there anymore updates for 2019, Yes, the threshold limits are $160,700 to $210,700 for 2019 [$157,500 to $207,500 for 2018]
Best of luck on that exam. There aren't many tax concepts more complicated than QBI.
@@MoneyandLifeTV If something really bothers me, I will let you know. Happy that I found a great teacher :)
I remember those exams all too well. Logged lots of hours with Becker.
@@MoneyandLifeTV Hey Mike I passed REG in Q4 19. Thank you so much, you have helped a lot. Now I am through BEC and this is my last session. Thank Mike, I loved your videos and sorry for the late reply
Thanks for your informative and useful video
Most welcome Alexandra, glad it was helpful.
Thanks so much for your support on this series everyone. More importantly…thank you for helping this community grow to over 11,000 subscribers strong! I really appreciate you Crushing that like button like you have been doing so this information can reach more people. This one is a long one so I’ve included time stamps to help you navigate the video. Make sure you watch Part 1 first before watching part 2. Think of this like a free class on the 199A deduction.
Does can this deduction be taken by a 1099 contractor (I get paid 1099 and I am a healthcare professional operating as sole proprietor(llc).by the way make below 150k annually..thanks
Much easier than the spreadsheet I am using at work. Thanks so much! I subscribed 😀
Ed A are you a single member LLC reporting on a Sch C? Then yes! Sounds like you are a service type of business, so pay attention to what he says about being in the business of providing services if that is your case.
Hey Mike, 🎉HAPPY NEW YEAR to you and your FAMILY🎉 and CONGRATS for your 11,000 subs. I remember when you used to have only 1,000 and I had only 2, now, You gain 10,000 more and I gain 3 more 🤣 THANK YOU for taking the time on creating this type of videos and sharing your knowledge.
Happy Temp thank you so much! I seriously cannot believe how much the channel has grown this year. I think on Jan 1 of this year we were at 800 subscribers. Happy new year to as well. I hope you and your family have a great time. I still have a few more days off so I'm looking forward to it :) Always happy to produce educational content for you guys. Its a lot fun. Here's to 2019 🍾🍾
Sir thanks so much for making easy to understand the complex QBI
Thanks!
I love Chipper, great example, makes it so much more fun and interesting:-)
Thanks for the feedback Fischer. Chipper really is the star of the show. I'm just the messenger :)
Time Stamps:
•Example 1 (Simple) - Calculation for a non specified service trade or business taxpayer (No capital gains) - 2:20
•Example 2 (Simple) - Calculation for a non specified service trade or business taxpayer (WITH capital gains) - 6:50
•Example 3 (intermediate) - Calculation for a Specified Service Trade or Business taxpayer (no capital gains) Income is between the phaseout limitations - 8:22
•Example 5 (Advanced) - Calculation for a NON Specified Service Trade or Business taxpayer (no capital gains) Income is above $207,500 - 15:39
Aggregation of multiple businesses - 24:00
Thanks Mike for this wonderful video, it would definitely help me in doing tax returns.
Awesome! Very glad to hear that. Thanks :)
Thank you very much for sharing this video, it helps me a lot! It is very kind of you!
Thanks Xuan no problem :) Glad you got something out of it.
Thanks so much for the info. Im co-owner in a partnership moving company. ownership is a 60/40 split, but we pay ourselves based on hourly work we do for the business. I really am not sure if what we pay ourselves is considered a guarantee payment or pass though. Payment isn't always 60/40 because it depends on how much hours of moving each of us does that week, but i don't think its guarantee, because if we don't get moves, we don't get paid. any advice?
Thank you so much. I subscribed to your channel. I'll be watching your videos over until I get it.
Thank Julio! Highly appreciated. Thanks for the support. I'll have a lot more tax and financial/investing videos to come.
Thank you, thank you, thank you for explaining this!
No problem Karena. Thanks :)
I am an S. Corp and think I know understand how to figure my QBI deduction, but my question is... I also have a rental property and would like to apply for the deduction to rental income. Would I enter the rental income QUBI deduction info as if it were another business? I don't think I would add the rental income to my S. Corp? Please advise. Thank you again for the valuable content you pour into your viewers, you have no idea how much your videos have helped me. You are a
#DifferenceMaker
Thank you Tucker for the support. I'm assuming the rental is outside of the S-corp? If you feel it rises to the level of a trade/business based on your involvement in the property then yes you can count it as part of your overall QBI deduction. If the rental is not held by the S-corp then you would not add the rental income to your S-corp income. Think of them as two totally separate entities which it sounds like they are in your case. Hope that helps.
Super instructions and clear guidance, thank you so much. It is helping me a great deal, Kind of you to share.
So happy to hear it. Thanks :)
Thank you for all this knowledge.
Thanks Sarah! Just sharing as much as I can at the moment. I still feel like I don't know many pieces of it, because it is so complex, but at least I feel like I have a good handle on the basics.
You made this crystal clear. Thank you 👍
Thanks Yikes, pleased to hear it. I'm going to start gearing up for more tax videos for this coming tax season.
This is the best video I have seen on this topic. I was hoping you might offer or clarify a situation that is never described in examples. At least not plainly. I believe this is a realistic situation for may.
Scenario: Peter has an LLC that has elected S-Corp tax status. He is single.
Peter earns 200K in Gross Business Income.
Peter pays himself $100K in a salary.
Peter has $10K in other business expenses.
Is this correct:
NET QBI = (200K-100K-10K) or (90K)
NET TAXIBLE INCOME = (200K-100K-10K) - (standard deduction) = ??
In my mind, and in this scenario: Net QBI = Net Taxable Income, without there being other things that drive down the taxable income.
Hi I am intractable. Although It is impossible for me to give you precise numbers it sounds like you are on the right track. The QBI deduction is the lesser of 20% of QBI or taxable income. To calculate your taxable income you would need to take into account the standard deduction. Your taxable income would be (100K Wages + 90K business income - standard deduction of 12K) or 178K roughly speaking......it sounds like you would take the lower of QBI in this example. I would expect your QBI deduction to be 90Kx20% = 18K roughly speaking. There might be some other limitations but I would think your QBI deduction in this example would be between 10K - 18K. It has been awhile since I looked at the spreadsheet now, but that is what I would expect. Hope that helps.
Thanks for the clear explanation Mike! If the only W-2 wages (S-corp) are paid to the owners in a Non SSB...can 50% of W-2 wages be deducted when income level exceeds phase out?
Hi MM great question. I believe the officer/owner wages would still count to the best of my knowledge. You might do an online search as well to clarify but I think the answer is yes.
Great Video. Will keep in favorites for constant review. Here's the big question. What was the logic, step by step for the lawmakers in coming up with this? I understand the rules, It just seems so Strange to say for an SSB we will use a phaseout percentage based on taxable income, but for a non SSB we will use a formula that includes Wages and Capital Assets. why?!!! who dreamed this up? I like knowing the why.
Good question! I honestly think they smoke shrooms when they are making this new tax laws up.
@@MoneyandLifeTV I have been reviewing this video daily to wrap my head around it. My CPA course didn't do a very good job (you did better), and the tax software at work pretty much figures it out.....But I still want to know why. Probably some weird compromise between different politicians that were moving the ball up and down the field. Then, in the end you have a masterpiece of strangeness.
Hi, how does this work for a s corporation shareholder. My software is not populating the qbi deduction for him. I'm confused.
Hi Rona, yes, the QBI should pass-through to the shareholder. The only time where I think it wouldn't is if the business was a specified service business.
Great explanation. Thank you!
No problem Enrique! Thank you very much.
This is excellent! I have a question though. If the business is qualified service business and the shareholder got a W2 for lets say 5k, the total income from the business is 25k, what would be the QBID? Total income for the tax payer is below the phase out for a single filer. I’d appreciate your help.
Hi Muneeb thanks for asking. In this very general example you are proving above if the person's net business income was less than their total taxable income than their QBi deduction would be roughly $5,000 (25,000 net business income x 20%) =$5,000
Hope that helps.
CPA Mike - What's your opinion on investments rental property as it relates to QBI, I self manage several rentals and I'm active in the business. I've been told that for rentals (Sched E filing), I don't need to issue 1099's. Now, with the QBI designation I'm getting mixed feedback some stating still no need for a 1099 while others say if I'm going to consider myself a professional and take the QBI deduction then I should be issuing 1099's. I appreciate your opinion.
Good question re: 1099's. There are circumstances whereby you may operate rentals ,but do not actually have a requirement to file 1099's. It just depends on who you pay. Think of 1099's and QBI as two separate things. The real way to answer that question is view the 1099 instruction filing requirements and determine if you meet those filing requirements. www.irs.gov/pub/irs-pdf/i1099msc.pdfwww.irs.gov/pub/irs-pdf/i1099msc.pdf
Hi Mike, Thank you for this video and spreadsheet, very helpful. Quick question please, in example #3, you use the higher Net Business Income for the deduction calculation. However, using the lower Taxable Income amount in the calculations results in a lower QBI deduction at the end. This is ok to end up with a higher deduction? Thanks for the help-
For 2022, single farmer had a net profit from the farm of $96,550 (after factoring in the self-employment adjustments to his income). He has no loss to carry forward from prior years. his taxable income, before applying theQBI deduction, is $147,966
What is the QBI deduction?
My brother and I are a 1065 taxed as an S-Corp and we draw a wage but also pay out wages to employees, what do I use to calculated the credit on my personal tax return?
Hi Karrissa, for the calculation all wages are taken into account including the wages you paid yourself. Is your income above the phaseout amount of $315,000 if married filing joint?
If your total taxable income is under the phaseout thresholds mentioned in the video though than you need not worry about factoring in wages. You can simply calculate it based on the lower of 20% of your net business income or the lower of your taxable income. I'm hoping you are using computer software to help you prepare your return. I do not recommend preparing this calculation by hand.
I hope that points you in the right direction. Certainly rewatch the video if necessary and part 1 to get a better grasp of the rules. I had to try to learn this stuff multiple times before proceeding, and i'm still learning new aspects re: the deduction.
Thanks for the detail explanation. Could you advise if cryptocurrency mining business qualifies for this credit?
Do you have a video explaining anything on if someone owns multiple pass-through entity's?
Hi Parker, thanks for asking. At this moment In time I do not. Unfortunately With multiple passthrough entities the calculation becomes extremely complex. So complex I could not do it justice in a simple video and explain it in a way that I think people would understand. Having tax software or a good accountant to help you with this will be worthwhile.
@@MoneyandLifeTV I am currently completing my Masters in Accounting, and was assigned this type of problem as homework, and the Professor has said he is not answering any questions for this assignment. Any thing to help point me in the right direction would be great! Thanks.
Good Afternoon,
Thanks for a great video. I think I'm hung up on one thing. In example 5, step 2 goes off of QBI = $290K and step 3 goes off of Taxable income = $260K. Maybe I'm not understanding the diff between QBI and Taxable Income. Is QBI always higher than Taxable Income? If so, why would there be a step 2 or 3 vs. always use Taxable income vs. QBI? Thanks in Advance.
This is great I really appreciate you!
Thanks so much I appreciate your support.
thanks man, much appreciated. this stuff is a doozey!
Great video. Thank You!!!
Thanks Liz! So pleased to hear you enjoy this.
Thanks. How do you know your business is qualified?
It is my understanding that Schedule C (Line 31) profit must be reduced by 1/2 Self-employment tax + Self-Employment Health insurance Deduction + IRA contributions
Say someone does a service trade and has a W2 + a 1099 (which is filed as a sole proprietorship). Does the W2 salary, independent of the business 1099 salary, affect the QBI deduction?
Great question, if the salary is different from the business than it would not affect QBI. However, if the salary is coming from the same business then it would factor in in relation to the QBI deduction.
How can i download the excel sheet calculation?? Tia
What about the regular expenses of the QBI, is't okay to deduct or only 20% is allow?
Hi Angelita, i'm assuming you are referring to the normal business expenses? If so, yes those are all deducted before QBI deduction is taken into account.
Very informative video, thanks so much. Question for ya: at 15:13 so you're saying instead of using the lesser of the two (which in this case is 200k taxable income), Chipper has to use the revised QBI $33,750 to calculate the 20%?? Is it just because he is a SSTB? or because he is over the income limit for QBID? or is it both? What if he is over the QBID income limit but NOT an SSTB?
Also, how does the SEP IRA play into this? Would contributions to your SEP IRA reduce either your taxable income or your QBI?
Would appreciate your help!!
It just seems so horrible that his total to calculate the QBID went from 200k to 33,750... He might as well have made less than 200k.. ie. 157k so he could qualify for a larger QBID
Hi Daniel fantastic questions. Re: your questions.
1. Yes, Chipper has to used the revised QBI amount of $33,750.
2. It is a bit of both because he is in a specified service trade or business AND his income above the limit.
3. Good question on the SEP. The SEP would be an income adjustment on the return. It wouldn't directly impact your net business income and QBI, however, it would reduce your overall taxable income which could impact how you calculate QBI.
Ya its a weird deduction isn't it? Pretty sure aliens invented this deduction. 😂
Can you do a simple example with an attorney (SSB), MFJ, whose net QBI is 290,000 and whos taxable income before the net QBI is 326,000.00. Would the phase out apply? The Net QBI (290k) is less than the phase out of 315k, does this mean he/she gets the full 20% QBI Deduction off the 290k?
Hi Pee Reevs, because your total combined income is $326,000 and you are in a specified service business unfortunately you would not able to take advantage of this deduction for 2018 because the maximum phaseout is $315,000. $0 benefit for 2018, but they will keep increasing the phaseout income limitations each year so maybe you would qualify for 2019 to get a partial deduction if your income remains about the same.
Money and Life TV really? Now I’m confused because I thought married filing jointly starts at 315 up to 415
@@MoneyandLifeTV because the income did not exceed $415,000 which is the max amount a married filing joint couple can make before no 199a deduction is applied, shouldn't you then proceed as an example three where chipper was $42,500 into the phase out and when you divide that by the 50,000 you get an 85% rate at which you use to calculate. so if you apply that same Theory to this example, $326,000 is $11,000 above the income limitation of $315,000 for married filing joint, and if you divide $11,000 by $100, 000 which is the range of the phase-out range for MFJ you get 11%. 11% of $290,000 qbi is $31,900 what you then subtract from $290,000 to get $258,100. you multiply that by 11% to get $28,391. That's copying example 3 step by step. Now we could avoid all of this if their total taxable income was above $415,000 no?
@@philrevahesq6180 see my take on your question and see if it was the same thing you were thinking.
Great explanation! I think I have it figured out, but got a little confused when you talked about aggregation. My husband and I file MFJ, I am a self employed accountant consultant and have Net Income of $63K from that and we have an LLC that holds rental property with net income after depreciation of $5K but we sold a rental property for a cap gain of $7K. I come up with a QBI deduction of about $3K. Sound correct?
My husband does not work, so my consulting income and our rental income is all we have other than $300 of interest income
Hi Bziviski, thanks for watching i'm glad you enjoyed the video. To be honest this deduction has so many factors involved it is not possible for me to know whether or not your calculation is correct unless I had your full tax return in front of me with all of your records. However, based on your numbers 3K sounds kind of low. You should be getting either 20% of your net business income or 20% of your taxable income minus capital gains. I would think your QBI deduction would be between 5,000 to $10,000 but like i said it is impossible for me to know. You might consider consulting with a CPA in your area, or figure out how the software (assuming you are using software) is arriving at that $3,000 amount.
How do the calculations change if you are married with a spouse that's a w-2 employee? Do I just take my net on my schedule minus the 1/2 SE tax deduction, SE health insurance deduction, and employer retirement contributions and then multiply the 20%? For example, my net income of $9,773 minus the 1/2 SE employment deduction puts me at $9,082. Would the 20% deduction be $1,816? or do I get the full deduction of $1955 because my wife has a w-2 income of $46,471? I'm a little confused.
Hi Aaron, great question, follow the schedule C form and whatever your net # is after deductions that is the number you want to use for the QBI Calc. I obviously can't verify your numbers over RUclips, but it sounds like you would use the $9,082 in this particular case from what you are describing above. Wages would not have an impact on the 20% deduction unless your total income is above $315,000. If your income is less than $315K you could still get the full 20% of your net business income. However, there are limitations: the 20% deduction is limited to the lesser of Net QBI OR Taxable income reduced by capital gains but before QBI deduction. Hope that clarifies things a little more.
@@MoneyandLifeTV thanks that makes more sense now. Just to clarify, we do have to subtract the 1/2 self employment tax before figuring out the qbi which would be the 20%, is this correct? If so, in my case above, I would multiply the 20% by $9,082 to get the deduction amount.
Hi Aaron, the self-employment deduction of 1/2 is an "adjustment to income" that shows up on schedule 1 www.irs.gov/pub/irs-prior/f1040s1--2018.pdf. Therefore, since it is not part of the SCH C, i don't believe you would include in your calculation. In other words your QBI # is your net business income, but before self-employment tax. You can do some online research to confirm, but off the top of my head I believe that is how that works. I'm more certain than not.
@@MoneyandLifeTV oh ok. I will look into some more to make sure. The reason I asked the question was because I got the following response from chatting with turbo tax.
The IRS released the Final Regulations that clarified that
(1) the 1/2 SE tax deduction,
(2) Self Employed Health Insurance deduction, and
(3) employer retirement contributions
need to be subtracted from your business profit to determine "Qualified Business Income" (QBI) for the 20% deduction.
Interesting, i'm not sure if I saw updated reg, can you send that to me if you get a chance? Perhaps i'm mistaken.
Hey Mike ! Thank you very much for this detailed explanation I have a solo 401(k) for myself employment business. I Would like to confirm with you to see if I calculated it right. So To calculate my taxable income; use gross income minus business expenses minus my solo 401(k) (Profit sharing and my employee contribution ). Correct?
Hi Jane, I believe you would subtract out the solo 401(K), but I cannot remember off the top of my head to be sure. You might google it to see if that is deductible in the QBI calculation. IRS changed the form now to report he QBI on. The form can be found here: www.irs.gov/pub/irs-pdf/f8995a.pdf and the instructions for it here: www.irs.gov/instructions/i8995a Hopefully the instructions will shed more light on what can be included in the calculation.
Also, because of QBI I highly recommend using tax software if you are not already. These calculations are extremely complex. At least with software you have something to check your numbers against to make sure it looks right.
Thank you very much! I will use software now I’m just doing some estimates Hand calculation!
I am a contract worker, who receives a 1099 MISC. Can I get the deduction? thanks for the video, it was awesome.
Hi Gyply, you may be able to take this deduction. As this is business related income. Depends on what your total annual income is and what type of business you do. Most people can get the deduction.
Thanks so much for the reply
No problem best of luck with deduction :)
Thank you very helpful
Thanks Carl!
Can’t focus....
That you for your wonderful videos though!!!:)
Great video! Have been searching for thorough explanation for a long time! One question - do contributions to your SEP IRA reduce taxable income that is used for the married filing jointly taxable income threshold of $315,000 and $415,000?
Great question Alex, yes, but it depends on where the SEP contributions are made.In instances people deduct the SEP contributions on their business income which of course will impact the amount of their QBI deduction. So in one instance the SEP will help, but it might reduce the QBI deduction depending upon a person's tax situation.
Thank you! this is great! I am not able to download the excel spreadsheet.
Thanks Ruth! Sometime the link gets broken. Not sure why. Try this : www.dropbox.com/s/36phs8rgsidw075/199A%20calculation%20examples%20%28protected%29.xlsx?dl=0
Ya, I've just gone bald. I had to literally pull out all my hair!!!!! 😱😱😱 Lmbo haha
Good info though bru. I'll have to watch both videos again... back to back lol haha
Same here 😂
Haha Mr Jules! Hows it going brother! Hope you enjoyed the holidays. This tax subject will make you want to pull your hair out while running over burning coals at the same time lol. Sorry for putting you guys through hell on this one, but I really do appreciate all the support. I shouldn't have any more tax videos that are this complex for a long-time. The rest should be much easier to follow and digest going forward. This just happens to be the most complex new tax subject within the new tax laws. You will have to bill me for the hair loss lol. 😜😂💸
This tax subject and video guarantees hair loss 😂 Watching this video to try to learn this stuff is probably deadlier than watching that video in the movie "The Ring" rofl.
i had my tax done last week, i own just 1 rental house property, my tax planner said that i can't get QBI because i should have a rental property license. is it true? am i eligible for QBI deduction?
thanks
Hi Editha, i'm not sure where the rental license requirement is coming from. Never heard of that to be honest. Your rental may or may not qualify for QBI depending upon how involved you personally are in the property. If you do the repairs, are the one managing it, than you could argue that you would qualify, because you are treating at as an active trade or business. Did your rental make money? If not it wouldn't matter regardless if you took QBI or not, because you would get no deduction.
Rentals are a very gray area of this deduction. Some people take an aggressive stance and claim they qualify for the deduction and others do not so it just depends. I may do a video later this year on the QBI deduction for rentals.
@@MoneyandLifeTV I own several rental units in southern California in several cities. All these cities require me to get a business license for each rental. I have to pay an annual fee on each property. I don't think this is a requirement from the IRS, but it kind of makes the rental look more like a business in my opinion.
youtuber is sole proprietorship and will count right mate?
Let's say I have 70k w2 income (from an institution) and 200k llc income from self employment. When calculating qbi, do I factor in my W2 from institution?
Hi mehmet, no only W-2 income that relates directly to your self-employment. Income from a job not related to your business would not count. Hope that helps.
Thanks for these videos! The Excel spreadsheets really helped.
I think Example #3 is missing a step at the end, however. Shouldn't the final allowable deduction be $1,012.50.
Hi Josh, thanks for commenting man. I will have to look at example 3. It has been so long since I have looked at the spreadsheet I would need to wrap my head back around it to say if it is one way or the other. If I have a moment this weekend i'll take a look.
Does the gain on the sale of business equipment qualify as QBI?
Hi Braydon, great question. I'm not 100% sure off the top of my head, but i'm more certain than not that it would qualify. As defined here: Qualified business income is defined as the net amount of qualified items of income, gain,
deduction and loss with respect to a qualified trade or business that is effectively connected with the conduct of a business within the United States.
Since the gain on the sale of the equipment is connected with the business activity in my opinion it would qualify as QBI. Hope that makes sense.
This is a very complicated question and there is no one answer. It goes like this currently. Section 1245 property sales, which includes most depreciable assets like machinery, vehicles and patents/copyrights, AND recaptured depreciation, -are considered ordinary income--BUT most recaptured depreciation is considered a tax preference item. Generally, these are not considered capital gains. Section 1231 property, which includes land, timber, buildings and attached machinery, when sold at a gain are capital gains BUT if sold at a loss, are considered ordinary income. This is NOT-I EMPHASIZE NOT-an all inclusive explanation. The section 199a law says one thing but title 26 gives conflicting information. Best to be conservative for now.
I wish that you were my accountant because in example #3 above you would have given me a $6750 deduction when, in fact I would have been entitled to only 15% of that or $1013. The reason for this is that you stipulated that the taxpayer in that example is in a specified service trade or business (SSTB). The calculation that you did however was for someone NOT in an SSTB. The two calculations are not the same! When one is in an SSTB AND within the phaseout range you would first do the calculation as if they were not an SSTB. Assume as in this example the the percentage that one is into the phaseout range is 85% (as in this case). This is the reduction from 20% QBI . Lets call this decimal percentage R. So R = 0.85. If one is in an SSTB then the final deduction must be multiplied by 1-R or 0.15 to arrive at the final deduction. So if one is NOT an SSTB the deduction would be $6750. If one IS an SSTB the deduction would be (1 - 0.15)*6750 or $1013. Your mistake is assuming that the reduction facotr for an SSTB and non SSTB is the same when both are in the phaseout range. They are NOT! There is a substantial additional penalty for being an SSTB when in the phaseout range.
Thanks for commenting Rabbit. They've made this new code section way too confusing. The code section around 199A is about 900 pages long last I heard at a tax update conference.
Thank you.
No problem Karthick. Happy to hear to this helped.
Hey, Mike, great video, I took the advantage of your months study. LOL. Just have one question here. When you calculated phase out percentage, you were using the Taxable Income Before QBD (200,000), but when you calculated phase out amount, you were using the the Total QBD (225,000), I got a little confused, can you have it further explained?
AFDD2-1.6 hi afdd can you clarify at what point in the video you are referring to? What example was I on at this point? If you remember
@@MoneyandLifeTV I read the instruction again, and got the point. Thank you for this wonderful vid.
Did anything change in January 2019 since
you created these two videos?
Hi Mohamed fantastic question. Yes there was one update i'm aware of. The IRS released further guidance on 199A for rentals. Can be found here: www.irs.gov/pub/irs-drop/n-19-07.pdf Enjoy :)
@@MoneyandLifeTV so it only has to do with rentals, everything else is the same?
As far as I know of yes, but i'm not 100% certain so always feel free to check out the IRS.gov website for further guidance on 199A.
can you have a negative business qualified income ?
Great question aaa. Yes, you can. In that case no QBI deduction sadly. I'm not 100% sure off the top of my head, but I believe the loss may carryforward, but I could be wrong.
@@MoneyandLifeTV thanks for the quick response great video ... I can't imagine a business can't write a loss against the wage income no?
No problem. The business will still get a deduction for the wages paid, but will not be able to take the QBI deduction in this case to the best of my knowledge. The loss will most likely carryforward to next year based on the facts you are describing. Think of the loss from the business and the QBI deduction as two separate things. Hope that helps :)
thank you
No problem Bruno. Thanks for watching :)
Great explanation Mike! I enjoyed the video. Question for you - I have an S Corp, does my W-2 income count as QBI?
Hi Kandice, great question. Yes, and no. As an owner of the business youur wages would help you get more of a QBI deduction if your income is above the threshold amounts discussed in this video. Of course what your wages would not do is they would not increase your Qualified business income.
Of course you still get to deduct your wages from the total business income, but that is totally separate from this whole QBI deduction thing. Hope that helps, and I hope that makes sense.
@@MoneyandLifeTV Hi Mike - Yes, the wages deducted from business income from a P&L calculation. I guess I need to work thru the numbers once I have my K1 schedule. Thank you!
No problem Kandice. They have really taken complexity to a whole new level with this deduction.
needed to add an example for married with S-corporation
Hi David, thanks for commenting. There are so many more examples I could do haha, but at some point it just gets so complex it is best to see an accountant where you live. This video took about 20 hours to produce so you can imagine how hard it would be to do specific examples by entity type and have it make sense.
This really demotivates investors. So if I choose to invest I not only will be taxed lets say 20% short term but then I lose 20% which would have been credited through QBI so you take massive risk because your investment might go down but if you are lucky and you make money the government will take 40%!