Videos

• Calculating QBI for K-1 Income

• Calculating QBI for Schedule C income

• Calculating QBI for Schedule E Income

Return Types

Generally, a QBI deduction is figured in an individual return (1040). Some trusts (other than grantor trusts) may allow for a QBI Deduction at the trust level. See the Final Regulations for details.

Businesses Types

Qualifying taxpayers include those with a domestic business operated as a sole proprietorship or income received through a partnership (as a partner), S corporation (as a shareholder), or from a trust or estate (as a beneficiary). It also includes farms and certain rental properties that rise to the level of a trade or business.

Schedules K-1 and QBI Codes

If the taxpayer gets a K-1 that does not have any info in the K1 codes, but you believe it should be a qualifying trade or business, the taxpayer should request a corrected Schedule K-1 from the partnership, S corp, or fiduciary. If the QBI info is not recorded in the codes, the IRS will assume it is not a qualifying business, so the taxpayer will not be allowed to take the deduction from the pass-through entity.

QBI from PTP

If the Schedule K-1 is from a Publicly Traded Partnership (PTP): 

1. Enter the box 20 QBI information on the K199 screen on the Adjustments tab (hyperlink available on the K1P screen).

2. Choose K1P in the For box.

3. Enter the appropriate Multi-form Code in the MFC box. This is a required field. A number must be entered, even if there is only one K1P screen on the return, or a red message about a missing required field will be generated.

4. Check the box Publicly Traded Partnership.

5. Review Form 8995 in View/Print mode.

Section 199A W-2 Wages (Form 1040)

The Section 199A W-2 wages field in an individual (1040) return is the amount gets passed through to the partner on Schedule K-1. Enter only the amount shown on the Schedule K-1 for Section 199A W2 Wages. All QBI entries are located on the K199 screen.

Multiple QBI Income Amounts

If the Schedule K-1 has multiple amounts for QBI, do the following: 

1. Enter the first set of QBI amounts into the K199 screen. Be sure to select the respective K-1 screen in the For drop down menu.

2. Enter the appropriate multi-form code in the MFC box to indicate to which K1P, K1S, or K1F screen the K199 screen applies. This is a required field. A number must be entered, even if there is only one K1 screen, or a red message about a missing required field will be generated.

3. Then press Page Down for a new screen and enter the second set of QBI amounts. Again, be sure to select the respective screen in the For drop down menu.

4. You can repeat the Page Down process as many times as needed.

Calculations for QBI and the QBI deduction

Review Form 8995 and any QBI Explanation worksheets to see how the QBI and QBI Deduction was calculated. Wks CARRY will show an amount for QBI loss carryover, which is used to compute the next year's QBI deduction, even if the loss is allowed in the current year.

QBI Thresholds

The thresholds are based on the taxable income before any QBI deduction. In other words, the AGI minus the standard or itemized deduction amount.

QBI Between Thresholds

The limits (W-2 and capital limits) are phased-in to determine the allowed deduction. Ranges are indicated by filing status. See the Form 8995-A Instructions for details.

QBI in Phase-out or Over the Threshold

Limitations include W-2 wage and capital property limits (UBIA).

SSTB

See Drake Tax - QBI Deduction - Specified Service Trade or Business (SSTB) for details about SSTBs and the QBI deduction.

No Income or Loss

If there is no qualified business income, there is no deduction allowed for the current year.

If there is a business loss it is carried over to the next year. The carryover amount can be entered on the 8995 screen in the following year's software.

Multiple Businesses

See Drake Tax – QBI Deduction: Business Aggregation.

Schedule C Business Code

Business codes do not determine or limit the availability of the qualified business income deduction.

If the business should be treated as a "specified service trade or business (SSTB)" check the box on the C screen Treat as a "specified service business" and then review Wks QBI Simple to see if the deduction is still allowed. Some specified service businesses are still eligible for QBI.

Schedule C Clergy Selection

The Clergy drop box is an indicator that the business if for a member of the clergy; it does not impact QBI.

If the clergy Schedule C should not have QBI calculated, enter a zero (0) in the Override calculated qualified income (or loss) field to indicate that the activity is not a trade or business and should not qualify for QBI deduction calculations.

Schedule C or F is a trade or business

In Drake Tax, entries on the C or F screens are generally considered to be related to a qualified trade or business venture. There is no check box to indicate whether the income or loss should be included in the calculation for QBI; it will be included by default.

If you determine that the Schedule C or Schedule F activity is not a trade or business, enter a zero 0 in the Override Calculated Qualified Business Income (or loss) field on the C or F screen. This will eliminate the QBI calculation for that activity.

Schedule E or Form 4835 is a trade or business

You must select whether or not the activity is considered to be a trade or business by indicating Yes or No in the drop list This activity is a trade or business in the QBI section of the screen. This entry is required to be made on each instance of screen E or 4835. If this is selected Yes, any income or loss from the activity will be included in the calculation of QBI deduction on the return.

Watch the video Calculating QBI for Schedule E Income for a demonstration.

W-2 Wages Allocation

See ​Drake Tax - QBI Deduction - W2 Wage Allocation 1120-S for details.

Deductions Impact QBI

Deductions such as self-employment tax, the self-employed health insurance deduction, and SEP or Simple contributions are taken into account when figuring the Qualified Business Income or Loss. The final regulations for QBI, page 44, state that:

"Thus, for purposes of section 199A, deductions such as the deductible portion of the tax on self-employment income under section 164(f), the self-employed health insurance deduction under section 162(l), and 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."

If the income is subject to SE tax, the taxpayer (spouse) is taking a self-employed health insurance deduction, or they have SEP or Simple Contributions, this subtraction from ordinary business income will be shown on the QBI Explanation worksheet (lines 9, 10, 11, as applicable) and the QBI amount is carried to Form 8995 to calculate the QBI Deduction.

The IRS provides more information in their Section 199A FAQs and Notice 2018-64.