Rachel operates a sole proprietorship that earns $200,000 of qualified business income after deducting salaries of $60,000. The sole proprietorship is not a specified service business. She files a single tax return for 2019. Assume her taxable income before the QBI deduction is $230,000. Rachel's QBI deduction for 2019 is:

$30000

Explanation:

Rachel files a single tax return for 2019.

The sole proprietorship is not a specified service business as such upper threshold does not apply.

Rachel operates a sole proprietorship that earns $200,000 of qualified business income after deducting salaries of $60,000.

W2 limits are:

Greater of :

a. 50% of W-2 wages paid to employees during the tax year

b. 25% of such W-2 wages plus the individual’s share of 2.5% of the unadjusted basis immediately after acquisition

Allowable QBI is:

Lesser of:

20% of QBI or

W2 Limit

W2 limit = 50% * $60,000 = $30,000

20% of QBI = 20% * 200,000 = $40,000

Therefore,

Rachel’s QBI deduction for 2019 is = $30,000

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