Please, help me on these questions. Thank you Question 6 : Ben and Molly are mar
ID: 2340309 • Letter: P
Question
Please, help me on these questions. Thank you
Question 6 :
Ben and Molly are married and will file jointly. Ben earns $300,000 from his single-member LLC (a law firm). He reports his business as a sole proprietorship. Wages paid by the law firm amount to $40,000; the law firm has no significant property. Molly is employed as a tax manager by a local CPA firm. Their modified taxable income is $375,000 (this is also their taxable income before the deduction for qualified business income).
What is their tentative QBI based on the W–2 Wages/Capital Investment Limit?
Determine their allowable QBI deduction.
Question 5 :
Ashley (a single taxpayer) is the owner of ABC LLC. The LLC (a sole proprietorship) reports QBI of $900,000 and is not a "specified services" business. ABC paid total W–2 wages of $300,000, and the total unadjusted basis of qualified property held by ABC is $30,000. Ashley's taxable income before the QBI deduction is $740,000 (this is also her modified taxable income).
What is Ashley's QBI deduction for 2018?
Question 4 :
Christine is a full-time teacher of the fourth grade at Vireo Academy. During the current year, she spends $1,400 for classroom supplies. On the submission of adequate substantiation, Vireo reimburses her for $500 of these expenses—the maximum reimbursement allowed for supplies under school policy.
a. What are the income tax consequence of the $1,400, if Christine chooses to itemize her deductions from AGI?
She can claim the educator's deduction in the amount of ___ ___ AGI and ___ is an employee business expense which is ___
b. What are the income tax consequences of the $1,400, if Christine claims the standard deduction?
She can claim the educator's deduction in the amount of ___ ___ AGI.
Question 3 :
Melanie is employed full-time as an accountant for a national hardware chain. She also has recently started a private consulting practice, which provides tax advice and financial planning to the general public. For this purpose, she maintains an office in her home. Expenses relating to her home for 2018 are as follows:
Real property taxes $5,250
Interest on home mortgage $6,300
Operating expenses of home $1,313
Melanie's residence cost $397,000 (excluding land) and has living space of 2,000 square feet, of which 18% (360 square feet) is devoted to business. The office was placed in service in February 2017, and under the Regular Method, Melanie had an unused office in the home deduction of $700 for 2017. Assume there is sufficient net income from her consulting practice.
a. What is Melanie's office in the home deduction under the Regular Method. Round your final answer to nearest dollar.
b. What is Melanie's office in the home deduction under the Simplified Method
Explanation / Answer
Answer of Question no. 6
As per IRS, a single individual can form an LLC and remain a sole owner. With the exception of regulatory requirements, a sole owner will conduct day-to-day operations in the same manner as he did as a sole proprietor. A single-member LLC is not regarded as a taxable entity by the IRS. Profits and losses are reported on the single member's personal tax return in the same manner as a sole proprietorship.
As per IRS in the year 2018, The deduction cannot be more than 20% of the taxpayer’s taxable income (less net capital gains). In addition, the deduction can be no larger than 50% of the taxpayer’s allocable share of wages of the PTB, or 25% of such wages plus 2.5% of the taxpayer’s allocable share of unadjusted basis of depreciable property of the PTB. some high-income taxpayers may be denied the deduction if their PTB falls into various categories of specified service businesses (SSBs), such as doctors, lawyers, accountants and professional athletes. These limitations are subject to a phase-in range based on the taxpayer’s level of taxable income. Taxpayers with $157,000 or less of taxable income ($315,000 or less for a married couple) would be free of the wages limit and the SBB disallowance. Taxpayers with $207,500 or more of taxable income ($415,000 or more for a married couple) would be subject to the full wages limit and any deduction for a SSB would be disallowed in full.
Ben is an SSB since he is having a law firm.
The deduction is as under,
20% of QBI or 50% of wages or 25% of wages + 2.5% of taxpayer’s allocable share of unadjusted basis of depreciable property
= 75,000 (375000*20%) or
20,000 (40000*50%) or
10,000 (40000*25%)
Now, phase out of threshold ($315,000 for MFJ)
Phase out range ($100,000 for MFJ)
So, QBI more than threshold = $60,000 (375000 - 315000)
So, wages limit reduction will be = 60% (60000/100000)
So, QBI will be considered as $55,000 (75000 (20% of 375000) - 20000 (50% of 40000))
So, Phased out deduction = $33,000 (55000*60%)
So, QBI after phased out deduction = $42,000 (75000 - 33000)
As per IRS, if PTB is a SSB, applicable percentage for QBI deduction is 100% less wages limit reduction.
= 40% (100-60)
So, QBI deduction = 42,000 * 40%
= $16,800
So, 16,800 or 75,000 whichever is less
= $16,800
Anwer of Que. no 5
3) And, no more than: 20% of modified taxable income ($740,000 x 20%)
$ 148000
As Ashley’s taxable income before the QBI deduction exceeds the $207,500 threshold, the W-2 Wages/Capital Investment Limit must be considered. Ashley’s QBI deduction is $148,000, computed below:- QBI Deduction Equals Sum of Deduction is Lessor of 1) 20% of qualified business income ($900,000 x 20%) $180,000.00 or 2)Greater of: 50% of W-2 wages ($300,000 x 50%) $150,000.00 or 25% of W-2 wages ($300,000 x 25%) plus 2.5% of the unadjusted basis of qualified property ($30,000 x 2.5%) $75,750.003) And, no more than: 20% of modified taxable income ($740,000 x 20%)
$ 148000