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.”
New Forms for 2019 - Qualified Business Income DeductionWe 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.
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.