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What You Need to Know about Qualified Business Income Deduction for 2019 August 8, 2019

Taxpayers claiming a Qualified Business Income deduction (QBI deduction) on their 2019 tax returns will be required to complete new Form 8995 or new Form 8995-A.
No form was required for 2018 tax returns. The IRS instead provided worksheets in Publication 535 “to be retained for your records.”

Qualified Business Income Deduction Info

New Forms for 2019 – Qualified Business Income Deduction

We discussed in last year’s tax update classes that without a required form, the most the IRS could do in selecting returns for audit was (1) check that the deduction wasn’t more than 20% of the modified taxable income, or (2) simply audit based on the amount of the QBI deduction calculation — “gosh, that’s a big deduction.”

IRS remedied their audit targeting problem with the new forms, presently issued as drafts.

Use Form 8995 (Qualified Business Income Deduction—Simplified Computation) if:

  • the taxpayer has QBI, qualified REIT dividends, or qualified PTP income;
  • 2019 taxable income before QBI deduction isn’t more than $160,700 ($321,400 if married filing jointly); and
  • the taxpayer isn’t a patron in a specified agricultural or horticultural cooperative.

Use Form 8995-A (Qualified Business Income Deduction) if:

  • the taxpayer has QBI, qualified REIT dividends, or qualified PTP income, and
  • 2019 taxable income before QBI deduction is more than $160,700 ($321,400 if married filing jointly); or
  • the taxpayer is a patron in a specified agricultural or horticultural cooperative.

But there’s more: 
The Form 8995-A includes four schedules: (1) Schedule A is for Specified Service Trades or Businesses; (2) Schedule B is for Aggregation of Business Operators; Schedule C is for Loss Netting and Carryforwards; and (4) Schedule D is for Special Rules for Patrons of Agricultural or Horticultural Cooperatives.

Reminder: 
All Forms are in draft.

One more bit of information on the QBI Deduction: 
The 2018 Publication 535 (Business Expenses) was revised July 24, 2019. That is a little late for the April 15 filers, but Chapter 12 on the QBI deduction is a good review for extension returns and it could be a basis (along with the new forms) for a staff meeting lesson ahead of year end planning appointments with clients.