How Does QBI Deduction impact S Corp, LLC and Sole Prop?

[@carolinemadden6410]

In an S Corp the w-2 income counts as an expense for the business thereby lowering net profit. It does seem that your spreadsheet account TJs for that. It means that the k-1 income is also smaller leaving less pass thru income to receive the QBI for. The QBI savings for the SCorp is less. Doesn’t that possibly change the calculation on what the net profit breaking point would be?

[@NaviMarajCPA]

Yes, that is correct and it is already baked into the numbers within this particular video.

[@AGMoneys]

THANK YOU for this question... i was trying find the answer to this :)

[@KC-vw6wz]

@navi Maraj Isnt' QBI in S-corp based on net income of S-corp? You mentioned it's based on distribution? Please check. Thanks.

[@ryder90s]

How did you calculate the self employment tax for sole proprietorship? What other factors/deductions reduce the 15.3%?

[@orlandomontano6835]

Excellent video thanks

[@docmartin1849]

Hi Navi! Thank you so much for doing what you are doing. Your videos have been super helpful! I wanted to sign up for your class however I noticed that the coupon code for the class sent to my email was registered as invalid. Has the time to redeem it expired? Thanks again and look forward to learning more from you!

[@lucylu7613]

Hi Navi. Thanks for the video. A big important question- when the distribution passes through to the business owner, its still subject to state and federal income tax? It’s not calculated on your sheet though?

[@NaviMarajCPA]

Hi @Lucy Lu. When taxed as an S Corporation, regardless if you take a distribution or not, the profit earned by the S Corporation is subject to both state and federal income tax. If it is not calculated on the sheet, its because its consistent for all tax types.

[@TheVanduse1]

Thanks for putting this together. This is great!

[@NaviMarajCPA]

You’re welcome Dan….hope it answered your questions or at least cleared some things up for you. 👍🏼

[@aznkidd08]

In the scorp example, you take 80k salary and 160k distribution. If you file as single, wouldn’t this exceed the income limit to take the qbi?

[@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 not much 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.

[@SpencerBMcDuffy]

Good content!

[@NaviMarajCPA]

Thanks Spencer!

[@SpencerBMcDuffy]

Awesome

[@2dive4dave]

Hey, can I purchase your spreadsheet?

[@brandonmorsillo3450]

can i have a copy of that excel chart?

[@EzDeanFassassi]

Thank you

[@ABC-xs3zs]

Could you explain how you came to your QBI deduction amount for Sole Proprietor and S-Corp?

[@NaviMarajCPA]

Hi ABC, this would be too much to go into here. There are many factors that affect the deduction amount. That said, you can find it online if you’re still interested in learning how to recalculate. Do a search for “QBI deduction calculator”.

[@noskillnochill]

For anyone else wondering this, Im guessing that number is the business income minus the deduction for half the self-employment taxes paid minus the standard deduction for a single filer. Then take that number and multiply it by 20%, to get the QBID. For the first example for sole proprietor, this would be ($40,000-(5,652/2)-$12,400)*0.20=4,955. He might have used a different standard deduction amount since my numbers are a bit off from his, but you would do something similar to this to get your QBID.

[@shirleyriceprice7907]

What is considered as small revenue

[@NaviMarajCPA]

Hi Shirley. Can you restate your question…not sure I understand what it is that you’re asking.

[@shirleyriceprice7907]

Hello, @@NaviMarajCPA if you have 40 million dollars revenue will that be considered a small business

[@NaviMarajCPA]

Different agencies/companies define “small business” differently so there isn’t a standard definition. The small business administration (SBA) defines small business by firm revenue (ranging from $1 million to over $40 million) and by employment (from 100 to over 1,500 employees).

[@shirleyriceprice7907]

@@NaviMarajCPA thank you for clarifying this for me. Thanks

[@NaviMarajCPA]

@@shirleyriceprice7907 you’re welcome!

[@Tx.details]

So do you deduct the QBI deduction from your total taxes paid? On the sole prop side?

[@etschool]

Thanks for the update Navi. But I still have a question for overall tax benefits between sole prop and S-corp election w/ QBI. The big question is how you can allocate W-2 wage like you presented. My understanding is that W-2 wages don't fluctuate based on the business's profit, but your W-2 comparison shows quite noticeable W-2 wage changes between high profit model and low profit model. For example, if someone runs a small business, can that person allocate $20k when he/she has less profit and suddenly his/her business is running well producing $150k, then allocate $80k as W-2 salary? I thought determining W-2 wage appropriate to the job description is extremely important in S-corp election and changing W-2 salary noticeably is not desirable. Normally W-2 wages don't change outside inflation rate in almost all corporate environment unless there is a promotion, so how would we justify changing W-2 salary from $20k to $81.2k in your examples? At least to me it looks like we are trying to "adjust" fictitious W-2 salary to maximize the benefit of not paying self-employment tax and deducting as much QBI as possible. I'd be concerned if different W-2 is entered each year. If the position is worth $60k W-2 salary in the market, whether the business runs good or not and even if it shows negative profit, that person should be paid at $60k. Slight change to reflect inflation or promotion makes sense, but just because the business is doing good, I wouldn't change W-2 salary from $20k to $80k.

[@NaviMarajCPA]

Hi Mike. At the end of the day, you have to do what makes you feel comfortable. I would consider the amounts I discuss in my videos as minimums and you can adjust upward accordingly. It seems like you have a lot of interest in this topic and I would suggest visiting rcreports.com. That company specializes in determining reasonable compensation and includes many factors into their analysis. Factors such as case law, industry, location, profit, etc. I don't discuss this in my videos but its possible to take zero reasonable compensation if the company is not distributing any profits to the owners. Every business is different. Think about this scenario....what if a business owner has developed a product (digital or traditional) and in order to make more profit, all the business owner has to do is spend more money on social media ads. Should the business owner be paid a different reasonable salary just because he/she clicks a button to spend more money in ads? He/she is not doing anymore work right? Why should their pay increase/decrease based on the profit generated? How much does a button clicker earn?

[@UIIHIIIH]

The video was about everything else other than the QBI deduction. Made no sense

[@HuttGabrielle-g3f]

Hulda Station

[@KathleenGeorge-b5t]

Jarrod Meadows

[@ceciliabaldwin3804]

Wilson George Young Linda Lewis Carol

[@NewJerusalemBaptist.Church]

you forgot to add self employment deduction to "john SP" and the standard deduction for both... these deductions will chnage the math alot