JR1 wrote:Sch. C, it's the profit.
Just curious on your interpretation here, but would Sch C profit be reduced by any/all of the following:
1/2 SE tax deduction
SE health insurance
SE retirement contributions
JR1 wrote:Sch. C, it's the profit.
WilsonCA wrote:sdodsoncpa wrote:In 2 CEUs I have taken since 12/22, both reference a calculation for Wages for the sole prop. Neither have a formula but believe a safe harbor will be released.
This would be for purposes of the 50% of W-2 wages limitation? Or for the sole prop paying "wages" to him/herself (to fulfill a supposed "reasonable compensation" requirement)? What's the "safe harbor" in reference to? Who was providing the CEUs? So many questions...
sdodsoncpa wrote:Then, as I think about the deduction, it comes to mind that the deduction is (for S Corps and Partnerships) on income that is not subject to SE tax so that leaves me to wonder as well about Sole Props.
MEMCPA wrote:Just to further stir the pot: https://www.forbes.com/sites/anthonynit ... c2028c2076
sdodsoncpa wrote:missingdonut, since the deduction is limited to 20% of net profit or taxable income, those items are considered.
Sch C Net Profit - 100,000.00
Front Pg SHI Deduction - 10,000.00
SE Tax Deduction - 7000.00
IRA Contribution - 5000.00
Standard Deduction - 12000.00
My understanding is it is 20% of 66,000 (100-10-7-5-12) and not 20% of 100k.
WilsonCA wrote:MEMCPA wrote:Just to further stir the pot: https://www.forbes.com/sites/anthonynit ... c2028c2076
Woah, mind blown. His "alternative reading" makes perfect sense, and answers the question in my original post through a completely different tack. If only things had been written that way! But I guess we're stuck with the mess that was actually passed, so I'll be going with his "straightforward interpretation" until further notice.
missingdonut wrote:
Oh, absolutely, that would be the case in that situation. The question I was more concerned with is: if we have the Schedule C with those figures, but the taxpayer also has other income (say, another $50k in W-2 wages), therefore the taxpayer has $116k in taxable income -- what is the 20% deduction in that case?
And, under the House Bill, those items would clearly have been added back. One can argue that is what is intended in the final bill. In other words, QBI means the net amount of items of income, deduction, etc. W-2 wages are a deduction. QBI does not include reasonable compensation. Thus, the deduction for reasonable compensation is not included in calculating QBI.
Terry Oraha wrote:I think congress intended for the disparate treatment across entities because if some entities don’t get the full deduction then some entities don’t get rate reduction. Look at the pass through deduction compared on the basis of straightforwardness to the Corp tax rate reduction. The Corp tax rate is much straightforward and that could be that they wanted the variety of limiting rules to apply to pass thrus so that they could meet their budget constraints.
sdodsoncpa wrote:In that case, the QBI is lower so the 20% is applied to the 100k and you get 20k as a deduction.
Jeff-Ohio wrote:At least Nitti had a clear enough head to realize that, as nice as that would be, it’s not what we get to under this new provision.
Jeff-Ohio wrote:
Not sure why the House Bill is relevant, since it says something completely different than what was ultimately passed.
As to the “one can argue” comment, it wouldn’t be a great argument, based on the what was passed. Take a look at “QUALIFIED ITEMS OF INCOME, GAIN, DEDUCTION, AND LOSS” in the statute.
You guys are trying real hard to massage things so that we end up with a completely level playing field between S-corp’s and sole-proprietorships. Good luck with that. At least Nitti had a clear enough head to realize that, as nice as that would be, it’s not what we get to under this new provision.
All legislative history is relevant.
What specifically are you referring to under “QUALIFIED ITEMS OF INCOME, GAIN, DEDUCTION, AND LOSS”?
Jeff-Ohio wrote:See what Missingdonut wrote in Post #65 (i.e. “…or allowed in determining taxable income for the taxable year). Was the S-corp’s wage payment to the owner allowed as a deduction? If it was, then it factors in to the calculation as a deduction. And there is nothing, anywhere, that says to add it back at the entity level or for the shareholder to include it as QBI at the 1040 level. Hence Missingdonut’s conclusion.
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