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01-19-2019, 04:31 PM
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#1
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Full time employment: Posting here.
Join Date: Dec 2003
Location: San Carlos, CA
Posts: 633
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QBI and TurboTax
My wife has a small sole proprietor consulting business, and it does appear that we will qualify for the QBI deduction. However, after entering all the data into TurboTax, the final amount is lower than I expected (and have calculated from the IRS rules).
The root of the discrepancy is that the QBI income that gets transferred to the QBI deduction simple worksheet is lower than the net business profit from Schedule C. I do understand that the final deduction can be reduced depending on capital gains, total income, etc., but this is before any of those adjustments are made.
Quite possibly I'm missing something. Any insight from anyone?
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01-19-2019, 04:35 PM
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#2
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Moderator
Join Date: Nov 2014
Posts: 9,070
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Click (right click I think, or there’s a search icon on the line) on the amounts and trace them to a supporting schedule. I have never seen Turbo Tax reduce a number without a schedule. It might be buried deep, but it should be there.
Mark sure you don’t have any overrides.
__________________
Every day when I open my eyes now it feels like a Saturday - David Gray
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01-19-2019, 04:42 PM
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#3
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Full time employment: Posting here.
Join Date: Dec 2003
Location: San Carlos, CA
Posts: 633
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Wow, thanks Jerry, that was quick. Yes, I already tried to track down where they get the numbers from, but basically got to a dead end. I agree that generally you can track things down this way ... in fact I can't remember any other occasion when this has happened.
I suspect this part of TT is still under construction; there was a recent update that fixed some other problems associated with the QBI deduction. But I'm also painfully aware that there could be some detail of the rules that I'm missing!
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01-19-2019, 04:53 PM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2008
Location: On a hill in the Pine Barrens
Posts: 9,669
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At the bottom of my sched c, I can see why all profit does not flow to the qbi form.
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01-19-2019, 05:08 PM
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#5
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Full time employment: Posting here.
Join Date: Dec 2003
Location: San Carlos, CA
Posts: 633
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Quote:
Originally Posted by target2019
At the bottom of my sched c, I can see why all profit does not flow to the qbi form.
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Thanks ... that's the answer! What I didn't realize is that deductions for self-employed health insurance, self-employment tax, etc., get taken off the net profit.
So we get to pay a little more tax than expected. On the other hand, the whole QBI deal seems like free money, so I'm not complaining!
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01-20-2019, 12:44 AM
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#6
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 4,172
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Are you talking about a TT Sch C? Using a different tax program (Taxslayer),
it appears to me that in 2 different problems the QBI deduction is 20% of the
Sch C net income (revenues less expenses). The SE health insurance and SE tax are deducted elsewhere.
Using the IRS Sch C and the wksht for the QBI deduction, it looked like
a 20% calculation also.....except for CGs,etc. that would not be in a typical small business.
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01-20-2019, 06:15 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2006
Location: Washington, DC
Posts: 11,313
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Just curious since this will affect a portion of DW's income. Does TT ask the right questions to flag that the QBI deduction applies or do you have to know to invoke it? I won't have her K1 to enter and see for a couple of months.
__________________
Idleness is fatal only to the mediocre -- Albert Camus
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01-20-2019, 07:10 AM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2008
Location: On a hill in the Pine Barrens
Posts: 9,669
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I only do forms. In the list "Forms in My Return", I have forms for Schedule C (and associated worksheets), QBI Component, QBI Simple, QBI Ded Summary.
As one follows the bouncing QBI deduction, it all makes sense.
Net Profit from Sched C
Allowable profit from this business (Net Profit minus health ins, 1/2 SE tax deduction, SE retirement contributions)
On the various forms there is possible interaction with other items in your tax calculations. I would not rely on interview question only. Look at the forms and see if the calculations and theory make sense to you.
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01-20-2019, 09:23 AM
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#9
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Thinks s/he gets paid by the post
Join Date: Dec 2016
Location: DC area
Posts: 2,464
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Quote:
Originally Posted by Peter
Thanks ... that's the answer! What I didn't realize is that deductions for self-employed health insurance, self-employment tax, etc., get taken off the net profit.
So we get to pay a little more tax than expected. On the other hand, the whole QBI deal seems like free money, so I'm not complaining!
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Interesting, I'm using H&R Block and its QBI worksheet does not deduct self-employment health insurance or SE tax before calculating the deduction. I've been wondering about the interaction among those.
The latest IRS 1040 instructions that I could find don't mention those either (the worksheet is on page 37 - it matches what H&R Block has).
https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
However, the instructions say, under Determining Your Qualified Business Income (bolding mine):
Quote:
Your qualified business income includes items of income, gain, deduction, and loss from your trades or businesses, including income from partnerships, S corporations, sole proprietorships, and certain trusts that are included or allowed in determining your taxable income for the year.
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I'm not sure what deduction means in this context because SE insurance/tax are not "deducted" on Schedule C, they are on 1040 Schedule 1. Since I first heard about he QBI deduction I've been afraid it would be a circular calculation. It is only academic to me for this tax year because the net capital gains issue zeroed out my potential QBI deduction.
Block still says this form won't be final until 1/31/19.
__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged
"All models are wrong, some are useful." - George Box
“There is always a well-known solution to every human problem: neat, plausible, and wrong.” - H.L. Mencken
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01-20-2019, 09:52 AM
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#10
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 4,172
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Trying to understand why SE health insurance and SE tax affect QBI deduction.....
1040 line 6= total income includes SE net income = gross inc less expenses
(SE health insurance, SE tax are not expenses on Sch C)
1040 line 7 = AGI = line 6 (total income) less adjustments (adjustments include SE health insurance, part of SE tax)
1040 line 8 = deductions
1040 line 9= QBI deduction calculated from worksheet in 1040 instructions for
line 9 https://www.irs.gov/pub/irs-dft/i1040gi--dft.pdf on pg.37
I don't see any mention of deducting SE health insurance or SE tax here either.
So while SE health insurance are definitely deducted along the way in determining AGI & taxable income, I don't see where they are deducted in calculating the QBI deduction.
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01-20-2019, 10:06 AM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2008
Location: On a hill in the Pine Barrens
Posts: 9,669
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At the bottom of turbotax Schedule C, there is a "Qualified Business Income Deuction Info" section. Below is a capture of part of that. Line 6 summary gets deducted from line 1. There are, of course other worksheets that support this.
HR may have something similar?
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01-20-2019, 10:21 AM
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#12
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Thinks s/he gets paid by the post
Join Date: Dec 2016
Location: DC area
Posts: 2,464
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Quote:
Originally Posted by target2019
At the bottom of turbotax Schedule C, there is a "Qualified Business Income Deuction Info" section. Below is a capture of part of that. Line 6 summary gets deducted from line 1. There are, of course other worksheets that support this.
HR may have something similar?
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No, H&RB's QBI worksheet explicitly takes Business Income as Schedule 1, Form 1040, Line 12 (the Schedule C profit/loss) - no adjustments. The IRS version I linked above does not explicitly reference where the number comes from.
It makes sense to me to back out SE medical, and perhaps that should be a Schedule C expense instead of a 1040 deduction. But backing out SE Tax seems odd to me - is there anywhere else where Federal tax paid affects Federal tax paid within the Federal code? Again, maybe this whole issue should have been handled on Schedule C before bringing it into 1040 (would lower AGI too if done that way - but that could get circular too since QBI phases our with AGI ).
__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged
"All models are wrong, some are useful." - George Box
“There is always a well-known solution to every human problem: neat, plausible, and wrong.” - H.L. Mencken
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01-20-2019, 10:41 AM
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#14
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Full time employment: Posting here.
Join Date: Dec 2003
Location: San Carlos, CA
Posts: 633
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OP here. I also posted the question on the Fairmark forum, and got a reply confirming the adjustments due to self-employed health insurance, etc. Link here:
https://fairmark.com/forum/topic/qbi...ons/#post-2107
I have always used forms, rather than the interview, but the only way I could get the QBI deduction to show up was to go through the interview for Schedule C entries.
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01-20-2019, 11:05 AM
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#15
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2008
Location: On a hill in the Pine Barrens
Posts: 9,669
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I know that during last month of updates the qbi forms have changed. But I have not been in the interview.
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01-20-2019, 11:06 AM
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#16
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 4,172
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very interesting.......I thought perhaps the wksht I saw earlier might have been in error since it was a Sept 2018 draft. I found this from Dec 2018 not labelled as draft but the wksht on p.37 looks the same to me w/o any of those SE items.
https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
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01-20-2019, 11:18 AM
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#17
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2008
Location: On a hill in the Pine Barrens
Posts: 9,669
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Quote:
Originally Posted by USGrant1962
No, H&RB's QBI worksheet explicitly takes Business Income as Schedule 1, Form 1040, Line 12 (the Schedule C profit/loss) - no adjustments. The IRS version I linked above does not explicitly reference where the number comes from.
It makes sense to me to back out SE medical, and perhaps that should be a Schedule C expense instead of a 1040 deduction. But backing out SE Tax seems odd to me - is there anywhere else where Federal tax paid affects Federal tax paid within the Federal code? Again, maybe this whole issue should have been handled on Schedule C before bringing it into 1040 (would lower AGI too if done that way - but that could get circular too since QBI phases our with AGI ).
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Can't be handled on Sched C, since SE retirement and SE tax are handled on 1040. Also, some have multiple businesses.
If you can appreciate all of the changes driving more business to paid tax preparers...then you understand the intent.
[emoji42]
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01-20-2019, 11:25 AM
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#18
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Full time employment: Posting here.
Join Date: Dec 2003
Location: San Carlos, CA
Posts: 633
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Quote:
Originally Posted by kaneohe
very interesting.......I thought perhaps the wksht I saw earlier might have been in error since it was a Sept 2018 draft. I found this from Dec 2018 not labelled as draft but the wksht on p.37 looks the same to me w/o any of those SE items.
https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
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That page 37 worksheet is equivalent to the TurboTax QBI deduction simple worksheet. The catch is that the 'total qualified business income' on the first line is the amount after subtracting all the SE items.
Really confusing.
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01-20-2019, 11:37 AM
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#19
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Thinks s/he gets paid by the post
Join Date: Dec 2016
Location: DC area
Posts: 2,464
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I suppose H&R Block will be updated on 1/31/19. It seems a potential problem if there is no actual IRS form that calculates this.
__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged
"All models are wrong, some are useful." - George Box
“There is always a well-known solution to every human problem: neat, plausible, and wrong.” - H.L. Mencken
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01-20-2019, 11:54 AM
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#20
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 4,172
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Quote:
Originally Posted by USGrant1962
I suppose H&R Block will be updated on 1/31/19. It seems a potential problem if there is no actual IRS form that calculates this.
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There is that wksht in the 1040 line 9 instructions. Perhaps there is a missing link . Sch C has a net income line which is directed to Sch1 (1040)and SE.
The wksht for L9 (1040) uses the term QBI and several paragraphs talk about what it includes and doesn't include but I don't see a form for getting from Sch C net income to QBI.
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