For certain taxpayers, the deduction for Qualified Business Income (QBI) is limited to the greater of:
(1) 50% of the W-2 wages paid by the business, or
(2) 25% of the W-2 wages paid by the business, plus 2.5% of the unadjusted basis of the business’s qualified property.
In a recent Revenue Procedure, the IRS provided three methods for calculating W-2 wages for purposes of this limitation. The first method (the unmodified box method) allows for a simplified calculation, while the second and third methods (the modified Box 1 method and the tracking wages method) provide greater accuracy. After computing W-2 wages under one of these methods, taxpayers must determine the extent to which the W-2 wages are properly able to be allocated to QBI. The Revenue Procedure, which applies to tax years ending after 12/31/17, also may be used in computing the required reduction of the QBI deduction for certain specified agricultural and horticultural cooperative patrons.
If you would like to learn more about the new QBI deduction for small businesses, please contact Brandon Caroprese directly using the contact information provided below.
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CONTACTING CAROPRESE & COMPANY
This publication is provided by Caroprese & Company as a service to its clients and colleagues. The information and content included in this publication should not be construed as technical advice. Questions regarding any matters discussed in this publication should be directed to Brandon Caroprese whose contact information is listed below:
Brandon Caroprese, CPA, MST