On Monday, July 17, 2023 at 11:58:27 AM UTC-7, Stuart O. Bronstein wrote:
Business is run through an S-corporation.
The owner wants to take the QBI deduction and asks if the salary portion of his compensation is deducted to determine QBI. I haven't been able to find
an answer to this. From a logical standpoint it seems to me that it would
be deducted. But from a policy standpoint that might go against the reason for the QBI deduction in the first place.
Any thoughts? Thanks.
--
Stu
http://DownToEarthLawyer.com
Reasonable compensation, (the salary they pay themselves in the S Corp), is excluded from QBI. If your S-Corp makes $100,000 and you pay yourself a salary of $70,000, you only get the QBI deduction of the remaining $30,000.
Here is a list of all of the exclusions from Qualified Business Income courtesy of IRS.com:
QBI does not include items such as:
Items that are not properly includable in taxable income
Investment items such as capital gains or losses
Interest income not properly allocable to a trade or business
Wage income
Income that is not effectively connected with the conduct of business within the United States
Commodities transactions or foreign currency gains or losses
Certain dividends and payments in lieu of dividends
Income, loss, or deductions from notional principal contracts
Annuities, unless received in connection with the trade or business
Amounts received as reasonable compensation from an S corporation
Amounts received as guaranteed payments from a partnership
Payments received by a partner for services other than in a capacity as a partner
Qualified REIT dividends
PTP income
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