Form 8995 / 8995-A - Qualified Business Income Deduction

QBID can be calculated using Form 8995 and Form 8995-A. In case the following are trues, Form 8995 is used: 

• The taxpayer owns a qualified business income (QBI), REIT dividends that are qualified, or qualified PTP income or loss. 
• Income subject to tax prior to QBID is equal to or less than certain limits; 
  • Single, HOH, Qualifying Widow(er): 2021: $164,900 / 2020: $163,300 / 2019: $160,700 / 2018: $157,500
  • MFS, married nonresident alien: 2021: $164,925 / 2020: $163,300 / 2019: $160,725 / 2018: $157,500
  • MFJ: 2021: $329,800 / 2020: $326,600 / 2019: $321,400 / 2018: $315,000
• The taxpayer is not a patron in a specified agricultural or horticultural cooperative. 

Using information reported elsewhere in the return, the Taxx Savage Pro automatically computes QBID, producing, as required, either Form 8995 or Form 8995-A. Information from Schedules C, E, F, and K-1 inform the accuracy of the computation. 

In certain circumstances, an amount used in the calculation can be manually adjusted. For instance, in the event that part or the entire income earned from a trade or business is not effectively related to the US. Manual adjustment can be made at the Qualified Business Income Deduction Amounts menu item of the business’s Schedule C, E, or F. 

You can access Form 8995 menu when you: 

For tax years 2021 and later - 

• Go to the Main Menu of the tax return (Form 1040) 
• From the menu, select Deductions 
• Then Qualified Business Income Deduction (8995) 

For tax years 2020 and before - 

• Go to the Main Menu of the tax return 
• From the menu, select Tax Computation 
• Then Qualified Business Income Deduction (8995) 

Qualifies for QBI Deduction - Answer NO in case the return doesn’t qualify for QBID. This way, you prevent the calculation of the QBID for the return. For instance, preventing calculation of QBID is necessary when the sole source of QBI is foreign income on a Schedule K-1 is also accidentally indicated on the K-1 as Section 199A income. In such a circumstance, the Schedule K-1 should be obtained. Alternatively, Section 199A income can be adjusted on the K-1 then Form 8082 included in the return to explain the adjustment. 

Taxable Income - Enter either a positive or negative adjustment amount to adjust the calculated taxable income prior to QBID 

Capital Gains - enter an adjustment amount to adjust the calculated capital gains 

REIT Dividends - Enter either a positive or negative adjustment amount to adjust the REIT dividends amount that pull from Schedule(s) K-1

Pass-through businesses - This menu item, for information only, lists all the Schedule(s) C, E, F and K-1 with income or loss that are included in the QBI calculation. Adjustments are made in the schedules and not here. 

Several items may be used in the proportional adjustment of the Income and Deduction columns. These items are include but are not limited to: 

• deductible part of self-employment tax;
• self-employment health insurance deduction;
• self-employed SEP, SIMPLE, and qualified plan deductions;
• unreimbursed partnership expenses (included in Schedule K-1 Box 14)
• interest expense connected to the acquisition of a partnership interest or S-corp ownership.

Aggregation of Business Operations - Every trade or business ought to be treated differently from the others for the purposes of the QBID computation. However, in certain circumstances, businesses may be aggregated. This may be very advantageous, for instance, in the event that one business has a payroll that is higher than the others. The following must be true for businesses to be aggregated: 

1. The tax year end used by all the trades/businesses is the same
2. Each trade/business must be 50% owned by the taxpayer for a large part of the tax year, inclusive of the very last day of that tax year. Ownership may be individually, in a group, directly or indirectly. 
3. There isn’t a Specified Service Trade or Business amongst the ones being aggregated. 
4. The trades/businesses attain at least two of the following factors:

1. The products, property or services of the businesses/trades are either the same or are normally offered together 
2. The trades/businesses use the same business resources such as accounting, HR, IT, Legal, manufacturing, purchasing, and personnel. 
3. They coordinate or rely on either one or several businesses in the aggregated group. 

The decision to aggregate is taken by the taxpayer rather than the preparer, putting into consideration the facts and circumstances in the present and the future. The decision to aggregate is non-revocable and it must be carried on in the successive years unless there is a change in circumstances that disqualifies the aggregation. 

To aggregate businesses: 

• Go to the Aggregation of Business Operations menu 
• From the menu select New 
• Description - Provide a short description of the aggregation’s name 
• Explanation - give a reason for the aggregation (in accordance with the IRC Sec 1. 199A-4). There are not more than 156 characters in two lines. 
• Changed from Prior Year - Provide an explanation for any changes, if at all any, to the aggregation from the prior year because of a trade/business’s formation, acquisition, disposal or ending. 
• Allocate Business to Aggregation - From the list, to include a business in the aggregation, check the box next to it

In the event that you file Form 8995-A with the return, a separate Schedule B for that form will bear the aggregation information. The aggregation information is to be on a different attachment to Form 8995 in the event that Form 8995 is filed with the return. 

Prior Year Qualified Business Loss Carryforward - enter all the losses or deductions that were not allowed in the calculation of the taxable income in a previous year, and that can be included in the present year. Based on the produced form, this amount will flow to Line 3 of Form 8995 or Line 2 of Form 8995-A, proportionately allocated amongst all the businesses. The amount will transfer to the form as a negative, regardless of its entry. 

Prior Year REIT/PTP Loss Carryforward - Enter any REIT or PTP losses or deductions that were never allowed in a previous year and can be included in the present year. Based on the form used, this amount flows to either Line 7 of Form 8995 or Line 29 of Form 8995-A. The amount will transfer to the form as a negative figure. 

 

Additional Information:

IRS: Qualified Business Income Deduction

IRS: Final Regulations

IRS: Publication 535, Business Expenses

Notice 2019-07: Section 199A Trade or Business Safe Harbor: Rental Real Estate (applicable to the 2018 tax year only)