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.

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.

Sharon Kreider, CPA, has helped more than 15,000 California tax preparers annually get ready for tax season. She also presents regularly for the AICPA, the California Society of Enrolled Agents, CCH Audio, and Western CPE. You’ll benefit from the detailed, hands-on tax knowledge Sharon will share with you—knowledge she gained through her extremely busy, high-income tax practice in Silicon Valley. With her dynamic presentation style, Sharon will demystify complex individual and business tax legislation. She’s a national lecturer for business and professional groups and consistently receives outstanding evaluations. In 2014, she was awarded the prestigious AICPA 2014 Sidney Kess Award for Excellence in Continuing Education.

View Author Page


How The $3.5 Trillion Budget Blueprint Could Impact Your Clients

The new reporting requirements on brokers are addressed in Section 80603 of the bill. “Broker,” by definition in Sec. 6045 (c)(1), is expanded to include “any other person who (for a consideration) regularly acts as a middleman with respect to property or services…A person shall not be treated as a broker with respect to activities consisting of managing a farm on behalf of another person.” In turn, the bill defines a “digital asset” as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.