New client came to me and provided 2020 tax return. for review. Taxpayer is an architect (not a specified business) who reported his business on Sch C. His net income on the Sch C was in excess of $600k. Since his taxable income is above the upper threshold and his business had no W-2 wages, his QBI deduction was limited to $4,165, i.e. 2.5% of unadjusted basis.
I believe that had he been an S Corp, and paid himself reasonable compensation, his tax savings would be very significant. I prepared a "what if" tax return, deleting the Sch C, and adding a W-2 and K-1 using $150,000 as a reasonable comp number. The result was his QBI would have been $75,000, i.e. 50% of wages.
The bottom line was that the tax savings were about $58K, with about $24K coming from the additional QBI and $34K from self-employment tax savings.
I am thinking that there could not be that much difference. What am I overlooking?
Thank you.
David