Pat's taxable income exceeds $157,500 and thus he is required to phase out his QBI deduction. The phase-out calculation is:

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INEEDHELP7510 INEEDHELP7510

05-03-2020
Business

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Pat's taxable income exceeds $157,500 and thus he is required to phase out his QBI deduction. The phase-out calculation is:

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jepessoa jepessoa · Answer 1 · 2020-03-09T01:44:36+01:00

Answer:

A) The lesser of 50% of business wages or 25% of wages plus 2.5% of the unadjusted basis of qualifying property

Explanation:

If a single filer's taxable income exceeds the $157,000 by $50,000 or more, their QBI deduction cannot exceed the greater of:

50% of taxpayer's allocable share of the W-2 wages paid with respect to the qualified trade or business
the sum of 25% of such wages plus 2.5% of the unadjusted basis immediately after acquisition of tangible depreciable property

The qualified business income (QBI) deduction refers to taxable income passed through by partnerships, S corporations, LLCs, or a sole proprietorship. This is a below the line deduction that doesn't lower your AGI, but it lowers the amount of taxes.