Page 218 - Small Business IRS Training Guides

Qualified Business Income Deduction

PATRON REDUCTION

A patron who receives a qualified payment from a specified agricultural or horticultural

cooperative, that is QBI for the patron’s QTB is required to reduce the QBI deduction for

such trade or business by the lesser of:

• 9 percent of QBI allocable to the qualified payment from the specified agricultural

or horticultural cooperative, or

• 50 percent of W-2 wages of the trade or business of the patron allocable to the
qualified payment.
COORDINATION WITH OTHER CODE SECTIONS
NET OPERATING LOSS

A Net operating loss under IRC § 172 generally is figured without the QBI deduction,

meaning the QBI deduction can’t create or increase the net operating loss.
ALTERNATIVE MINIMUM TAX
The QBI deduction that is used to determine regular tax is also used to determine
alternative minimum taxable income.
SELF-EMPLOYMENT NET EARNINGS
Net earnings from self-employment aren’t reduced by the QBI deduction when
computing self-employment tax.

NET INVESTMENT INCOME
Net investment income isn’t reduced by the QBI deduction when computing net
investment income tax.

PENALTIES

The thresholds for determining whether there is a substantial understatement for the

accuracy-related penalty of IRC § 6662 is reduced for taxpayers claiming a QBI

deduction:

• from 10 percent of the tax required to be shown on the return or $10,000,

• to 5 percent of the required tax required to be shown on the return or $5,000.

PUERTO RICO
For purposes of determining QBI, the United States includes Puerto Rico for taxpayers
who have taxable income from sources within Puerto Rico that are subject to tax under

IRC § 1. Further, W-2 wages are figured by including W-2 wages paid for services

performed in Puerto Rico without regard to IRC § 3401(a)(8).

May 2019

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