20% Business QBI Deduction Tax Rules Explained! - Very Detailed

20% Business Deduction Explained! (How the 2018 199A Qualified Business Income Deduction Works) Part 1 of 2
The downloadable word doc handout can be found here:www.dropbox.com/s/k55x8s0lxfexyql/199A%20Handout.docx?dl=0
For a complete over view of the business tax law changes please see this video here: kzbin.info/www/bejne/m3LOqZJsoMaCe5o
My complete tax playlist can be found here:
kzbin.info/aero/PLSofnwEEZdUwO76397C824IRz5xofXEQz
Time Stamps:
•(What is 199A?) What is the qualified Business Income Deduction: 2:10
•What counts as qualified Business Income : 3:10
• Is rental income qualified business income? 3:41
• What is NOT qualified business income? 4:20
• Do you have to be active in the business to receive the qualified business income deduction? 5:48
• 199A Qualified business income deduction limitations 6:28
• 199A deduction calculation example: 7:25
• What type of businesses qualify for the 20% 199A deduction? : 10:32
• What is a qualified trade or business? : 11:35
• Income limitation phase in explained : 13:08
• What is a specified service trade or business?: 14:35
What is 199A? (How does the QBI Deduction Work)
For the years beginning January 1st 2018 through December 31, 2025
A taxpayer other than a corporation is entitled to a deduction equal to 20% of the taxpayer’s “qualified business income”
What is qualified business income?
The taxpayer should determine their “qualified business income” for each business they own (If multiple businesses are involved)
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. Short-term and long-term capital gain and losses.
What is not qualified business income?
- Dividend income
- Any interest income
- Net gain from foreign currency transactions
- Income from national principal contracts
- Amounts received from an annuity
- Compensation (Wages)
- Guaranteed payments
199A deduction limitation:
The deduction is limited to 20% of lesser of
- Qualified Business Income
OR
- Taxable income AFTER reduction for any net capital gains, but BEFORE the 199A deduction is taken into account.
Example: MFJ taxpayer has the following:
- $100,000 of QBI (Qualified business income)
- $100,000 in Long-term capital gains
- ($30,000 of tax deductions)
- Net taxable income in this example would be $170,000.
The 199A deduction is limited to the lesser of $20,000 ($100,000 x 20%) or $14,000 (20% of $70,000). The $70,000 is calculated by taking the total net taxable income of $170,000 - $100,000 capital gains) = $70,000
Result: In this example is $14,000 199A deduction. This means $14,000 of this person’s business income is no longer subject to tax.
Businesses and/or taxpayers who do not qualify for the 199A deduction:
- C corporations do not qualify
- Individual employees do not qualify. You have to have ownership interest in the business to qualify.
What is a qualified trade or business?
Every business is a qualified trade or business as defined under section 199A with the exception being.
- The trade or business of performing services as an employee
- A specified service trade or business
Exception of 199A deduction for Specified service business:
The deduction is allowed if the taxpayer claiming the deduction has taxable income of less than $315,000 (if married filing jointly; $157,500 for all other taxpayers).
Because the two W-2-based limitations also do not apply when taxable income is below those same thresholds, a taxpayer in a specified service business with taxable income below the thresholds simply deducts 20% of any qualified business income (subject to the overall limitation).
Where to find more information:
- Irs Notice 2018-64 www.irs.gov/pub/irs-drop/n-18-64.pdf
- IRS 199 Proposed Regs: www.irs.gov/pub/irs-drop/reg-107892-18.pdf
- IRS FAQ re: 199A: www.irs.gov/newsroom/tax-cuts-and-jobs-act-provision-11011-section-199a-qualified-business-income-deduction-faqs
- Forbes article written by Tony Nitti: www.forbes.com/sites/anthonynitti/2018/08/09/irs-provides-guidance-on-20-pass-through-deduction-but-questions-remain/#e8c2c2c2ff84
- Article on 199A written by KPMG: home.kpmg.com/us/en/home/insights/2018/08/tnf-initial-impressions-proposed-regulations-irs-guidance-for-section-199a.html

[@MoneyandLifeTV]

Part 2 of 2 is here! 5 Examples (step by step) of how to calculate the QBI deduction: kzbin.info/www/bejne/bp_VqYmMltxmhKc The downloadable excel document can be found here: www.dropbox.com/s/36phs8rgsidw075/199A%20calculation%20examples%20%28protected%29.xlsx?dl=0

[@franksoliday5510]

Thanks Mike for sharing your knowledge and delivering it in digestible pieces that we can follow. You obviously invest a lot of time and effort in creating your videos. Please keep them coming.

[@MoneyandLifeTV]

Frank, thank you so much for your kind words. I will certainly keep them coming. I have a whole line up of tax videos coming up for the start of 2019. I generally release the bulk of my new tax videos each year during the months of Jan - April to coincide with tax filing season. Videos like this one that are very technical can take about 10 - 20 hours to produce from start to finish. I try very hard to make it easier for the average person to understand so thank you for noticing. Merry Christmas/ Happy Holidays Frank. 😀🎄

[@greyravenhawk1043]

I am a retired EA and I would like to thank you for this video. A very clear and concise explanation of a typically unclear IRS ruling. Thanks.

[@MoneyandLifeTV]

Thank you for your kind words GreyRavenHawk :) I appreciate your feedback and the support. I'll have al ot more tax videos to come in the future.

[@MoneyandLifeTV]

Hows it going everyone. I'm publishing this video on Dec 23rd of 2018 so Happy Holidays/Merry Christmas to all of you. Thank you so much for your support and for continuing to CRUSH that like button. I will release the 2nd and final part to this series on Sunday 12/30/18 (Just before tax season) Once I have that next video ready I will post a link to it here in the comments and in the description section of this video. Between this video and part 2 coming out next week these are by FAR the most technically complex tax videos I have ever produced on this channel. I hope you get a lot of these videos. I've went to numerous professional level courses on this stuff throughout 2018. This is the most complex new area of tax law in years. I just hope I was successful at taking these complex rules and explaining it in a way that the average person can understand. Lots more tax and investing videos to come in 2019. Have a great week everyone. Live life uncaged!!

[@LotusAscending]

I have 3 1099s and 1 service business.... But my taxes are holding me up for not completing the qbi... From what youre saying I wouldn't qualify meaning I should put $0?

[@dfw1fast143]

Thank you. Getting as much info as I can. Then repeat repeat repeat. Takes a while for it to soak in. And most our clients have no idea about it.

[@MoneyandLifeTV]

Hi Chris, thanks for watching. It took me a lot of study, but it sounds like you have the right idea. Lots of self study my friend. Hopefully followed by a lot of alcohol lol. 🍷

[@dfw1fast143]

Money and Life TV Lol. Think I’ll pass on the alcohol. Seems like enough alcohol has been partaken in creating these laws.

[@MoneyandLifeTV]

Haha so true, so true.

[@EilishA]

Thank you for posting this, will watch part 2 now. I've worked in Tax and I'm currently doing my Master's in Taxation trying to manually do these calculations for my Partnerships class. Except the problem has that one partner put in rental property as their investment in the partnership and their basis stayed the same. I think maybe I am overthinking the problem, because from both partners one is a lawyer and the other a CPA. Thank you for posting this again! Great explanation.

[@MoneyandLifeTV]

You can do it!

[@WellBehavedWallet]

Huge props and thanks to you for putting all this info into video form! I got about halfway through before I had to take a breather, but planning on coming back in. Thanks again, man. You're amazing!

[@MoneyandLifeTV]

Thanks so much Well behaved Wallet. Sorry I know its a lot to digest lol. But the rules are that complex. There is a 2 minute video on this subject somewhere on KZbin but it leaves about 75% of the details out so a person walks away thinking they know how this deduction works when they really don't. Thanks for the support and Happy new Year!

[@pafischer1911]

Thank you so much for this tutorial, My head has been spinning with this, ...off to see your part II, :-)

[@MoneyandLifeTV]

I think my head was spinning after I made this video :)

[@HI-bv9is]

@@MoneyandLifeTV :) Thank you very much you really made it a lot easier to understand!

[@clairewang3083]

Thank you so much for the excellent work, Mike. Your video is so clear, easy to understand, and funny too!

[@MoneyandLifeTV]

Claire, thank you so much for the feedback that means a lot. So pleased to hear that it was easy to follow. I try to make these boring tax videos more fun/exciting to watch.

[@jozettewilliams1532]

This was crazy but fun! You made it so interesting. Keep up the good work. Im glad I found this video.

[@MoneyandLifeTV]

Thanks Jozette, that means a lot. Some of this stuff is so dry but I do my best to make it interesting.

[@tanishamills]

Wonderful video. Fantastic breakdown of the QBI concepts. Looking forward to the next video!

[@MoneyandLifeTV]

Glad you enjoyed it! Thanks Tanisha!

[@BULLBOOMBEARBUST]

Merry Christmas! A whole lot of awesome info again Mike. Thank you. You knocked the wind out of me at 16:09 though LOL. Us KZbinrs can't take the deduction for adsense earnings. I'm just hoping TurboTax calculates this one corretly for me.

[@MoneyandLifeTV]

Jason, Merry Christmas brother! Thanks for your feedback. I think you will like part 2 even more. These technical videos take forever to produce lol. I was pretty bummed that KZbinrs are considered SSB's ,but oh well that is how the cookie crumbles on this one. I would feel confident that Turbo tax will calculate it correctly, but by you watching this video, and the one i'm going to release next Sunday you will have a much better understanding of how this works so you will be able to tell if the software is calculating it correctly or not. You will have to do inputs for this for each business activity you have...like your KZbin,...your rentals, etc This will probably be the very last item you enter on your tax return, because in order for the software to calculate this correctly everything else must be entered first so it knows what you final taxable income is before the deduction is taken in account. Take care Jason. Cheers to making the most of 2019 despite the impending economic doom lol.

[@rbarnold9396]

A small word of advice for those business owners out there. DO NOT, under any circumstances, try to calculate the QBI yourself. I am a tax practitioner of many years, and I have gone through several seminars on this new law and my head is still spinning. Many of the final regs have not even been written by the IRS, and the government shutdown has exacerbated that situation. Use an experienced tax prep firm, EA Practice or CPA firm to do your taxes this year. Those with no business are not affected by QBI and the tax law is much easier for these individuals.

[@MoneyandLifeTV]

Time Stamps: •(What is 199A?) What is the qualified Business Income Deduction: 2:10 •What counts as qualified Business Income : 3:10 • Is rental income qualified business income? 3:41 • What is NOT qualified business income? 4:20 • Do you have to be active in the business to receive the qualified business income deduction? 5:48 • 199A Qualified business income deduction limitations 6:28 • 199A deduction calculation example: 7:25 • What type of businesses qualify for the 20% 199A deduction? : 10:32 • What is a qualified trade or business? : 11:35 • Income limitation phase in explained : 13:08 • What is a specified service trade or business?: 14:35

[@88107]

Q5. What is a qualified trade or business? A5. A qualified trade or business is any trade or business, with two exceptions: Specified service trade or business (SSTB), which includes a trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, dealing in certain assets or any trade or business where the principal asset is the reputation or skill of one or more of its employees. This exception only applies if a taxpayer’s taxable income exceeds $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers Performing services as an employee

[@loungelizard836]

Wow! Such good info, clearly presented and in an entertaining style. (Are you sure KZbin videos aren't a product as opposed to a service?)

[@huberchacon7314]

Excellent explanation. Even when my English is not so good I understood. Ty.

[@rhroney1]

Mike, you have skills! Thank you for walking me (I mean RUNNING ME) through a complex opportunity. I am in your debt.

[@MoneyandLifeTV]

Free download dropbox link to the word document shown in video can be found here: www.dropbox.com/s/k55x8s0lxfexyql/199A%20Handout.docx?dl=0

[@SpenceTTv]

Awesome video! Studying for my CPA currently and this was easier to digest than Becker’s explanation. If this comes to your attention, since this video, is the only update the phase in/out amounts. I know their are indexed up. Thank you

[@notreal6032]

Yo thank you so much, this clarified everything I was unsure about (mainly regarding SSBs)

[@vickieowodunni6481]

Wow! Thank you so much for this. This is very helpful for my tax preparation test.

[@MoneyandLifeTV]

You're very welcome Vicki, They changed the form recently, but most of the rules I believe remained the same.....they like to make it as confusing as possible.

[@erikaj1266]

Awesome presentation! Part 2 is also amazing!

[@MoneyandLifeTV]

Thanks Erika! Thank you for watching both. I know its a lot of info to take in all at once, but i'm very happy to hear you found it helpful. After consuming this much tax law all at once I usually recommend people consume an alcoholic beverage to take the edge off.😛🍷🍹

[@erikaj1266]

No, Mike, thank you. I've been preparing tax returns professionally since tax year 2002. I'm an EA. I've searched high and low for comprehensive explanations, and by far your series is the best I can find. I feel for you when you mention the innumerable hours spent trying to educate yourself on the topics at hand. I've spent several hours there myself, which is why I am so impressed with what you have put together. And the spread sheets, holy smokes, the time and effort you put in there is amazing. I've subscribed. I've also started watching other videos you have put out there... The AMT video was also great. And, yes, I think I could use a beer..

[@MoneyandLifeTV]

This might be the nicest thing anyone has ever said to me. Thank you so much Erika! Now please go have that beer :) lol

[@MrBetrayedSilence]

Hey Mike, new subscriber here. Due to a slight lack of the IRS being absolutely clear about all professions that may be an SSB it seems like there might be some contention between the IRS and and taxpayers. Especially with when they mention the word “trade” on both sides. By definition it’s a skilled job, typically one requiring manual skills and special training. How do you differ a qualified trade business and specified service business when they say an SSB is also any trade or business where the principal asset is the reputation or skill of one or more of its owners or employees? My question for you is about my job, I own a Body Piercing and Jewelry store. It’s a manual skill and specialized training but the business is based off my reputation.. 😂

[@MoneyandLifeTV]

What's going on Dan? Thanks for the support. Ya unfortunately there is a lot of grey area around this darn deduction. Are you under the income thresholds of 157K or 315K? If so you don't have to worry about being a specified service business. You can still get the full deduction as long as your total taxable income is below. This how the IRS defines the SSB from their website: For taxpayers with taxable income that exceeds the threshold amount, specified service trades or businesses (SSTBs). An SSTB is a trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, dealing in certain assets or any trade or business where the principal asset is the reputation or skill of one or more of its employees or owners. The principal asset of a trade or business is the reputation or skill of its employees or owners if the trade or business consists of the receipt of income from endorsing products or services, the use of an individual’s image, likeness, voice, or other symbols associated with the individual’s identity, or appearances at events or on radio, television, or other media formats. The SSTB exception does not apply for taxpayers with taxable income below the threshold amount and is phased in for taxpayers with taxable income above the threshold amount. For 2018, the threshold amount is $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers. The threshold amounts will be adjusted for inflation in subsequent years. Hope that helps.

[@babyblue8820]

Great video , fast and easy to understand!!

[@MoneyandLifeTV]

Thank you BabyBlue!

[@billycastle6728]

Thank you for all of these excellent videos! Does the new 8995 form replace the 199A? Does my 1099 income as an independent contractor qualify for the 20% deduction?

[@MoneyandLifeTV]

Hi Billy thanks for the support brother! The 8995 form was designed to help simplify this crazy process. They made this deduction so complex that they had to create a separate form to try to simplify it. Your 1099 contractor work should qualify you for this deduction unless your income is really really high. Hope that helps :)

[@karlalozano8997]

Such a good explanation! Thank you 🙏

[@MoneyandLifeTV]

Thanks Karla!

[@hugofullante3758]

Thank you for explaining this complicated topic.

[@MoneyandLifeTV]

My pleasure Hugo, thanks for watching and for commenting.

[@abdelazizabdalla5800]

Thank you, great explanation and easy to understand.

[@MoneyandLifeTV]

Thank you Abdelaziz! Glad to hear this was easy to follow.

[@omshalom9486]

Hi Mike, you're the best. Thank you very very much for the contribution of tax knowledge.

[@tousiefahmed6297]

Thanks Mike for a perfect explanation! Keep it up.

[@MoneyandLifeTV]

Thank you Tousief, they finally made simplified version of this form. They make these things way too confusing.

[@feixiangsun957]

Very Clear! I. Like your explanation. Thank you

[@MoneyandLifeTV]

Thank you Feixiang :) I'll be producing more tax, and investing videos throughout the year so stay tuned :)

[@skotman85]

What are your thoughts on the effects of QBI when it comes to EmployEE contributions vs EmployER contributions (e.g. in a Solo 401k)? Here is a quote from the IRS 199A regulations, ""the deduction for contributions to qualified retirement plans under section 404 are considered attributable to a trade or business to the extent that the individual’s gross income from the trade or business is taken into account in calculating the allowable deduction, on a proportionate basis to the gross income received from the trade or business." The words "attributable" and "proportionate" make me think that this language is referring to EmployER contributions and not EmployEE elective contributions. So in a real world example, if I have a solo 401k and want to contribute $10,000 into it for tax year 2018, the EmployEE contribution may not have an effect on my QBI, therefore giving me a full $10,000 worth of deduction, whereas a $10,000 EmployER contribution looks like it would lower QBI and would only be worth a $8.000 deduction (80%). I would appreciate your opinion on this. Thanks!

[@MoneyandLifeTV]

Hi Skotsman85, i'm not totally sure to be honest, but i think your thinking is correct. I don't think the Employee contributions would come into play as much as the EmployER contributions would impact the total QBI as far as i understand it. The QBI deduction is a really odd duck, because if you lower your taxable income it actually lowers your potential QBI deduction. Therefore (in a general sense) the only way to increase your QBI deduction is to increase your taxable business income which most people want to have "less' taxable income. Great question.

[@MA-vk1md]

Thank you for your video..I am W2 and Self Employed LLC. 2020 and 2021 I had no income for my business due to covid and some business loss. Turbo tax takes me to a screen that says "QBI should not have a value when no previously disallowed losses are present for regular tax purposes." Under B Schedule C Suspended Losses it says -1742. Did I do something wrong or is this for informational purposes and just continue without changing anything? Thank you.

[@MoneyandLifeTV]

Hi, M A generally with no business income there should be no QBI deduction. As far Turbo tax goes you would need to contact them regarding questions about their software as I cannot address such questions. Thanks.

[@vishalshah9619]

my dad liked it. that means a lot man!

[@mariachaires8063]

Hello your videos have been so helpful to me as I just started doing taxes this year it gives more confidence in this following tax season. I wanted to ask you which software is good for tax preparation?

[@MoneyandLifeTV]

Thank you so much Maria. I'm so glad to hear these videos are helpful. I learn a lot every time I produce one. It is a great refresher lol. A lot of tax professionals actually watch my tax videos. Tax software for professional tax prepares. You have numerous options available. These are the ones i'm most familiar with and what I would recommend based on your client base. For 1040 prep: I prefer Lacerte or Ultratax. Lacerte may be the cheapest option, but i'm not 100% sure. For business tax prep I prefer Ultratax or Prosystems. For estates and trust prep ( I prefer Ultratax or Prosystems. Each software has its limitations, but I from experience I feel that Lacerte and Ultratax or easier to use. ProSystems is the most advanced software that I know of, but it is not as user friendly. Hope that helps. Happy new year :)

[@mariachaires8063]

@@MoneyandLifeTV thanks so much!!! I'll definately look into it... and again thank you for all this helpful videos. Happy new year!

[@jenilee0921]

@@MoneyandLifeTV Great videos! Would Turbotax be a good option if I'm only filing taxes for my business?

[@ItsInMyShortsvids]

I’m a sole proprietorship- I repair and calibrate anemometers. Do I qualify?

[@jadenardini7736]

It is good information I am ready to see your second video to cover 199A.

[@FlaschDJ]

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) when tallying QBI.

[@FlaschDJ]

Hello??? 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) when tallying QBI.

[@epi9820]

Awesome video! super clear!

[@SuperLocoloco69]

Great video dude!

[@MoneyandLifeTV]

SuperLocoloco69 thank you!

[@angelaurbina3406]

Hi, new subscriber here, thank you for your video! I have a question. I established a single member LLC in 2019 & I also worked full time and received a W2 from my employer for 2019. (both completely separate things). I am doing my taxes on TurboTax and it asks me if my business is QBI. Can I put yes? or will it interfere with the wages I earned from my job?( even though it is completely separate to my LLC)? Soooooo confused :( In advance, thank you for your help!

[@christianpate2151]

Hey Mike, what if I have an LLC? Can I take the QBI deduction? Also, is it possible to take the QBI deduction and NOT claim the deductible part of self-employment tax? My goal is show the highest possible AGI on my tax return. Thanks!

[@buzybill]

How is Taxable Income calculated? In the new Form 1040, Taxable Income is adding AGI + Section 199A deduction. It is circular logic.

[@MoneyandLifeTV]

Buzybill hows it going man?Thanks so much for asking this, because silly me I forgot to include it in the video. To avoid the circular logic the tax return has to be fully prepared before the deduction is taken into account. In other words calculating the 199A deduction would be the very last thing you do on your tax return. Also, the rules specifically state that taxable income is determined BEFORE taking the 199A deduction into account. Great question! Happy New Year!

[@thatonefoo8179]

Thank you Mike for sharing your knowledge

[@MoneyandLifeTV]

My pleasure Wilmer! Thanks for watching. Many more tax videos to come.

[@godisgood789]

I operate a Scooter Rental company by Disneyland I took over the company during the pandemic and migrating over as a Sole proprietorship. Does this qualify?

[@diamond_dog627]

I want to withdraw my 401K and use it exclusively for my business start up costs. This will not be a lona but a full on withdrawal that would normally be considered taxable income. As a sole proprietor or LLC could these funds be eligible for the 20% tax deduction?

[@MoneyandLifeTV]

Hi Anna, i'm really glad you are asking me first. I would strongly discourage you from using your 401(K) to fund a business. If you under age 59 1/2 you will be hit with a 10% penalty on top of your Fed and State tax rate. Basically you would be losing 40 - 45% right off the bat. I would encourage you to consider other funding options. A business loan would be a far less expensive option than using a 401(K) plus the interest would be tax deductible. You could also do a 401(K) loan, but I would not suggest drawing out the money. The 20% QBI deduction you are referring to only applies to qualified business income. If took money from your 401(K) and contributed it to a business it is treated like a normal money transfer which basically means there is no tax deduction. Not the answer you probably want to hear, but I would hate to see you lose half your 401(K) balance in one quick swoop.

[@SwoleDentist]

Dude, YOU ARE AWESOME!

[@MoneyandLifeTV]

Thanks Iceman! Producing this video helped me remember the majority the of the rules.

[@chupie123456]

Hi Mike, thanks for posting these helpful video's questions for you I own 3 multi family houses with a total units = 7 apartments and I file the 1040 SCH E for each. ( Yes a landlord) if I put in the 250 hours of work into them would I qualify for the 20% business QBI deduction?

[@jasonsignor7237]

Question: What if I have two businesses, an LLC and a PLLC. Can both businesses qualify for the 20% deduction? I am assuming yes?

[@MoneyandLifeTV]

Great question, yep multiple businesses can qualify for the 20% depending upon the type of business and if the business has income.

[@jasonsignor7237]

@@MoneyandLifeTV Thank you!

[@jacobhubbard9266]

I'm trying to my taxes and one of my side jobs was food delivery for both Grubhub and UberEats. Do these businesses qualify for QBI?

[@MoneyandLifeTV]

Hi Jacob, love the question. Grubhub and UberEats would both be considered specified service businesses, however, if your income is under the threshold limits discussed in the video you should still be able to qualify for some form of the 199A QBI deduction (or perhaps the full 20%) depending upon your overall income.

[@ptiaptia7347]

what if someone making >$150 thousand /year? Thanks so much for sharing your great knowledge.

[@MoneyandLifeTV]

Hi KT if you file single and make less than $150K per year I would expect you could get the full 20% QBI deduction. The only thing I think that could reduce it would be if you had a lot of capital gain income.

[@10dildeep1]

Very informative video. Great Job.Thx.

[@HappyCarReviews]

How are you Mike? Question, I'm a sole proprietor of a small hvac business , Under your knowledge, Do I qualify?

[@MoneyandLifeTV]

Hi Temp, Yes, you business would generally qualify for the deduction as long as you have a positive net business income, and your taxable income is below the threshold phaseout limitation amounts shown in the video. Great question.

[@HappyCarReviews]

@@MoneyandLifeTV Thank you for the reply Mr Mike👍🏼 You're the BEST!

[@MoneyandLifeTV]

No problem HappyTemp. Have a great New Year! :)

[@concettamorabito5243]

What if you're an employee AND sole propieter? For those with both W2 and 1099: Does this mean we can calculate this deduction only on the 1099 income? Or does this disqualify us completely simply because we are technically an employee some of the time?

[@MoneyandLifeTV]

Good question it still counts on the 1099 Income.

[@vin.handle]

From what I've been hearing and reading, for a sole proprietor, the QBI will not affect the FICA taxes you pay?

[@MoneyandLifeTV]

That is correct. QBI primarily affects income taxes only.

[@vin.handle]

@@MoneyandLifeTV Thanks again for the help. I am looking at Form 8995 and it looks fairly straightforward.

[@MoneyandLifeTV]

They finally simplified it a bit. Thank goodness haha The QBI deduction was so complicated not even accountants could figure it out.

[@someserica2219]

How can a member of a 1120S increase their business income for the QBI deduction since W2 earnings are not included? Will distributions help with the QBI?

[@MoneyandLifeTV]

Hi Somes, good question. Distributions are not considered expenses so they would not increase or decrease your net business income. Distributions affect equity only and not the profit and loss statement. The QBI deduction is weird because the more business income you have the higher the 20% deduction you can get, however, if you have higher business income you get taxed on a higher taxable income. Deferring expenses/purchases is one simple way to increase your qualified business income, but I don't recommend it. Ultimately I still suggest people try to keep their net business income as low as possible even if it means getting a lower overall QBI deduction. Doing this usually yields the best overall tax result. Hope that helps, and thanks for watching :)

[@christinegallardo6857]

Can u update for 2020

[@MoneyandLifeTV]

Hi Christine, thanks for asking. Possibly, they have a new form now that simplifies this a bit more. Check out form 8995A

[@jasonsignor7237]

Excellent! Thank you!!!

[@MoneyandLifeTV]

Glad it was helpful!

[@michelleescamilla5021]

Thanks! This helped a lot!

[@leonornoel3743]

Thank you very much for all the information.

[@MoneyandLifeTV]

No problem Leonor :) Thanks!

[@johnkim7470]

@@MoneyandLifeTV kjhjkl

[@movie3537]

Is residential rental income qualify for QBI deductions?

[@MoneyandLifeTV]

Hi Movie, fantastic question. Yes, and no. In other words its a great area. It would depend on how actively involved one is in managing the property, doing repairs, maintaining the books, etc. I think this article will help. www.kitces.com/blog/irs-notice-2019-07-199a-qbi-deduction-250-hours-safe-harbor-rental-real-estate-business/ You can also look up "Notice 2019-07" which can be found on the IRS website or by doing a google search.

[@MrEdlindsay]

How about $2M from commission for introduction of a commercial borrower to a commercial lender?

[@MoneyandLifeTV]

Hi Edward, good question. Not 100% sure, but to my understanding commission income would be qualified business income. I think this article may provide some further guidance. www.mondaq.com/unitedstates/x/753286/Income+Tax/Qualified+Business+Income+Are+You+Eligible+For+A+20+Deduction+Part+II+Additional+Guidance You might also check out this link on the IRS website. www.irs.gov/newsroom/qualified-business-income-deduction

[@yapinghuang3923]

Good work and well done

[@MoneyandLifeTV]

Thank you Yaping!

[@garyw5960]

I earn none employee compensation and pay self employee tax. Do I qualify? Thanks.

[@MoneyandLifeTV]

Sounds like you are a sole proprietor, so yes, you likely qualify assuming your income is below the thresholds mentioned in the video, and you meet the other rules discussed.

[@consuelosaahbaehr9410]

Do authors who get royalties from sales on Amazon qualify? I get a 1099 misc. from Amazon and they classify it as "royalties." The income is between 40 and 50 thousand.

[@MoneyandLifeTV]

Hi Consuelo, fantastic question. Wow that is impressive on the royalties. If you sale products on amazon than I think it would qualify to the best of my knowledge. I can't tell you with 100% certainty, but I believe it would qualify for the deduction. Certainly sounds like a business activity in my opinion, and if your total income is under the threshold amounts you shouldn't have a problem getting the full 20% QBi deduction on that income. Hope that helps. Thanks :)

[@daveyjones8764]

Does this apply to me if I own 40% of a construction LLC and I am involved in the business??!!!! I get paid quarterly

[@MoneyandLifeTV]

Hi Hell on wheels, great question. yes, this would likely apply to you. As a member of the LLC you would receive 40% of the QBI deduction if there is one to be had. It will appear on the LLC K-1, and you would report it on your personal income tax return.

[@willoughbykrenzteinburg]

@@MoneyandLifeTV The deduction does not exist at the LLC level; it only exists at the individual level, so there is nothing to take 40% of. I know what you mean. Essentially, if the qualified business income was $10,000, then 20% of that would be $2,000, and there are no other sources of QBI, then a member owning 40% would essentially get a $800 deduction, but that's not really what is happening. His portion of that $10,000 is $4,000, and 20% of that is $800. The reason it is important to make this distinction is because there are potentials for certain limits on the deduction, and this applies to a cumulative total. If they have QBI from several different sources, then the QBI on each individual source might be limited. Also, if they have QBI losses from other sources, those losses will offset any QBI positive incomes. This is why the deduction is not calculated until you get to the individual level, and it is erroneous to state that they would get 40% of the LLC's QBI deduction. The LLC doesn't get a deduction. There is no deduction on the K-1. The only thing on the K-1 would be that member's share of qualified business income along with other factors that may or may not limit the deduction on the individual return such as unadjusted basis and W-2 wages, etc.

[@jeffreyguilliatt7103]

Odd. The H &R tax preparer told me yesterday that because my wife is a self employed dog trainer, she cant take this deductions. He stated that it is because she is in a service profession. Now im confused. Lol

[@MoneyandLifeTV]

Hi Jeffrey, sounds like that HR Block preparer may be wrong. If you file MFJ and your total income is less than $315,000 you can qualify for the deduction even though it is technically a "specified service business" Might look at amending that tax return if it has already been filed.

[@jeffreyguilliatt7103]

@@MoneyandLifeTV thanks for the clarification.

[@MoneyandLifeTV]

No problem Jeffrey. I hope you are able to get a larger deduction with the QBI.

[@mariannewright7846]

Thanks great information!!

[@MoneyandLifeTV]

Thank you Marianne! I put a lot of time into these two videos so I'm glad people are finding the information to be helpful.

[@charleneramirez5700]

Hi, Does a bookkeeper fall under accountant in this rule?

[@MoneyandLifeTV]

Hi Charlene, yes, good question

[@thekeshelkompany323]

So confusing. So, can you do scenarios please.

[@surapureddyveerababu6559]

Useful information

[@MoneyandLifeTV]

Thanks! Glad to hear you enjoyed it.

[@thekeshelkompany323]

No, just plainly say if W2 wages a part of your QBD or not. If it's just income I made from my home-based business, then say that.

[@MandoRdgz]

So real state passive does not qualify?

[@MoneyandLifeTV]

Real estate can qualify but it depends on your personal level of involvement within that particular activity.

[@MandoRdgz]

@@MoneyandLifeTV Thanks. Another question: When it comes to the repair regulation elections, the De minimis safe harbor election is the most beneficial to choose correct? This is vs to choose the capitalize repair and maintenance costs or, the small taxpayer safe harbor election correct?

[@chesterbrand418]

Im looking at it and like algebra my Eureka moment will come

[@MoneyandLifeTV]

Haha thanks Chester. Love your comment. It is a lot like learning math and some self study is certainly required to truly understand it. Part 2 has a lot of math involved :) Part 2 can be found here: kzbin.info/www/bejne/bp_VqYmMltxmhKc Cheers !🍷

[@deysigarcia4122]

thank you So much!

[@MoneyandLifeTV]

Thanks Deysi for the feedback. So glad this helps!

[@Kobinme1]

Is this the same as the 8995 form?

[@MoneyandLifeTV]

Hi Kobinme1, thanks for asking. It is related to that form. When I produced these videos that form didn't exist. I need to do an updated video that covers that specific form.

[@jasonsignor7237]

What is the clip at 1:37 from? hahaha

[@TheLaughingLion]

Can you do a video on how to report youtube income for a beginner? like#43👍😉🎄

[@MoneyandLifeTV]

Hey Laughing Lion, hows it going! Merry Christmas. Thanks for the topic suggestion. That would be a great one to do, unfortunately it might take me sometime to get around to producing it so in the meantime.....here is what I would "suggest" I'm assuming your channel is not incorporated under a Corporation, LLC, S-corp, etc. I'm assuming you did not form a legal business entity. If you did than you would have to file a separate business return in addition to your normal tax return. At that point I would suggest going to see an accountant to have them help you with that. If you did not form a legal business entity .......If that is the case than you would be like me and considered to be a sole proprietor and would report your ad revenue income on 1040 SCH C. Either line 1 or line 6 (other income). I can't remember the business code off the top of my head, but within the SCH C instructions you can find it. I've linked the instructions below. Scroll through the instructions until you find the business codes. Just fyi - We are in the business of "internet publishing and broadcasting" as KZbinrs. I had to research all this stuff last year for myself so that is how I know. Here is the form 1040 Schedule C: www.irs.gov/pub/irs-pdf/f1040sc.pdf Here are the instructions to the form schedule C. www.irs.gov/pub/irs-pdf/i1040sc.pdf Hope that helps. Show less

[@TopTraciRenee]

can you give some examples of service businesses? Thats like most businesses lol what about like hair dressers, tax preparers, life coaches..none of that qualifies right?

[@TopTraciRenee]

oh sorry I should have watched the whole thing first you answered it lol THANKS

[@MoneyandLifeTV]

Haha no problem Tracie :) Thanks for watching.

[@tshirtartdesignqueenleo3855]

im under a c corporation but single and file sole perpetrator

[@MoneyandLifeTV]

Hi TShirt, I think you mean you file a "Schedule C" as a sole proprietor? If so you can qualify for the QBI deduction. An actual C corporation would not qualify for the QBI deduction.

[@tonythaiger93]

S corporation qualifies for QBI.

[@MoneyandLifeTV]

Tony Jhang that is correct. Thanks for clarifying. 😀

[@jackyang2912]

Yeah... Was totally thinking of STD when I heard the acronym. Got weird when you addressed that in the video.

[@MoneyandLifeTV]

LOL At least I know I'm not the only one who thought that. Thanks for commenting Jack.

[@akshayshah7472]

Thanks for such wonderfull explanation, 💯

[@MoneyandLifeTV]

Thanks Aksahy, no problem brother :)

[@aaronc4724]

RIETS ARE IN ON THIS.

[@MoneyandLifeTV]

This is true, thanks for commenting Aaron.

[@steveg9302]

That's pretty cool that The Great White Hope (A.k.a. Trump) enacted this law for us! #KAG2020

[@MoneyandLifeTV]

lol, yes law is in effect going forward at least until 2025 as far as I can recall off the top my head.

[@steveg9302]

Money and Life TV well let’s pray the president after that doesn’t modify the tax cuts and jobs act. Trump is doing a hell of a job for small business and the backbone of the economy! 💪💪💪

[@MoneyandLifeTV]

Never know what that man will do next haha. But i really hope he does not modify it because i'm exhausted from learning all the new laws as a CPA

[@poohbear8122]

Is this also used for independent contractors?

[@MoneyandLifeTV]

Hi T Bell thanks for watching. Yes, this deduction is for business owners so if you are an independent contractor and work for yourself you could potentially qualify for this tax deduction.

[@portlandimages]

I wish I had watched this video 2 months ago

[@MoneyandLifeTV]

Better late than never as they say ;) Thanks for watching Zhou.

[@HiBye-lq8qf]

Someone shoot me. Just shoot me - tax professional

[@johnkim7470]

This is a test

[@MoneyandLifeTV]

Haha, John that was exactly how I felt when I was putting this video together.

[@MA-vk1md]

Thank you for your video..I am W2 and Self Employed LLC. 2020 and 2021 I had no income for my business due to covid and some business loss. Turbo tax takes me to a screen that says "QBI should not have a value when no previously disallowed losses are present for regular tax purposes." Under B Schedule C Suspended Losses it says -1742. Did I do something wrong or is this for informational purposes and just continue without changing anything? Thank you.

[@MarS-bo9dp]

Great explanation Mike! Thanks.

[@MoneyandLifeTV]

Thank you Ma S! I appreciate the feedback. I sunk a lot of time into this one haha.