The IRS on Friday posted a draft of a form that affected taxpayers will submit with their 2019 tax returns showing how they computed their qualified business income (QBI) deduction under Sec. 199A. Taxpayers who have QBI, qualified real estate investment trust (REIT) dividends, or qualified income from a publicly traded partnership (PTP) will use Form 8995, Qualified Business Income Deduction Simplified Computation, to report the computation.
The one-page draft form contains the same computation that is found in the “2018 Qualified Business Income Deduction — Simplified Worksheet,” on p. 37 of this year’s instructions to Form 1040, U.S. Individual Income Tax Return. However, the worksheet is retained by the taxpayer, while Form 8995 will be attached to the taxpayer’s return and submitted to the IRS.
The form contains lines at the top for listing the name, taxpayer identification number, and QBI or loss for up to five trades or businesses. Note that the form does not help taxpayers compute their QBI.
QBI from the taxpayer’s trades or businesses is then totaled and combined with any QBI or loss from the prior year. The form also has separate lines for qualified REIT dividends and PTP income or loss, plus a separate line for the net capital gain limitation calculation.
Sec. 199A allows taxpayers to deduct up to 20% of QBI from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust, or estate and can be taken by individuals and by some estates and trusts. The deduction is not available for wage income or for business income earned through a C corporation.
The deduction is generally equal to the lesser of 20% of the taxpayer’s QBI plus 20% of the taxpayer’s qualified REIT dividends and qualified PTP income, or 20% of taxable income minus net capital gains. Deductions for taxpayers with taxable incomes above certain threshold amounts (which are adjusted annually for inflation) may be limited.
— Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a JofA senior editor.