Raj is a 50% shareholder in an S corporation. In the current year, he is reporting $50,000 of salary, 12) $2,000 of interest income, $20,000 of qualified business income from the S corporation and $10,000of long-term capital gain. Raj's taxable income before the qualified business income deduction is$65,000. Raj will be allowed a QBI deduction of:

A) $20,000.

B) $4,000.

C) $11,000.

D) $13,00

Question

Business

Kash

10 August, 01:48

Raj is a 50% shareholder in an S corporation. In the current year, he is reporting $50,000 of salary, 12) $2,000 of interest income, $20,000 of qualified business income from the S corporation and $10,000of long-term capital gain. Raj's taxable income before the qualified business income deduction is$65,000. Raj will be allowed a QBI deduction of:

A) $20,000.

B) $4,000.

C) $11,000.

D) $13,00

+4

Answers (1)

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Phoenix Davies · Answer 1

The correct answer is B) $4,000.

Explanation:

QBI stands for qualified business income, which is a type of tax deduction claim. The QBI deduction is the lesser of 20% of qualified business income and 20% of taxable income which is in excess of net capital gain.

In the given situation, 20% of qualified business income is 20% x $20,000 = $4,000. The taxable income is excess of net capital gain is $65,000 - $10,000 = $55,000. We then need to find the 20% of this amount, which equals 20% x $55,000 = $11,000.

The QBI deduction allowed is, therefore, the lesser of $4,000 and $11,000. Hence, the correct answer is $4,000 which corresponds to option B.