Page 211 - Small Business IRS Training Guides

Qualified Business Income Deduction
HOW TO FIGURE THE DEDUCTION?

QBI COMPONENT

Reductions to the QBI Component (continued)

Above the Threshold but Within the Phase-In Range

For taxpayers with taxable income above the threshold, but within the phase-in range,
the computation for the deduction is adjusted as follows:

1. QBI is reduced by the applicable percentage for SSTB,

2. W-2 wage and UBIA of qualified property limitations are phased in, and

3. The QBI Component is reduced by the Patron Reduction.

Taxpayers above the threshold, but within the phase-in range are allowed to consider a
portion of their SSTB business as a QTB. Their W-2 wage and UBIA of qualified

property limitations are phased-in. And, their QBI Component is reduced by the Patron

Reduction if they are a patron in a specified agricultural or horticultural cooperative.
Applicable Percentage of SSTB
Taxpayer’s with taxable income above the threshold but within the phase-in range can
include an “applicable percentage” of QBI, W-2 wages, and UBIA of qualified property

from an SSTB in their QBI computation. The applicable percentage is computed as
follows:

Taxable Income* Less Threshold
100% Less = Applicable Percentage
Total Phase-In Range
* Computed before the QBI deduction.

Example 5 –
Within the Phase-In, SSTB Applicable Percentage

Tom, who is single, is the sole proprietor of a small accounting firm. In 2018, his taxable

income is $175,000, QBI is $172,000, and the business paid wages of $65,000. His

applicable percentage is:
175,000 – 157,500
Applicable Percentage = 100% - = 65%
50,000

QBI and wages allowable in computing Tom’s QBI deduction are
Thus, the amount of
computed as follows:

• QBI: $172,000 x 65% =
$111,800
• Wages: $65,000 x 65% = $42,250

May 2019

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