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QBI K1 and consulting question

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  • QBI K1 and consulting question

    I'm leaning on my tax professional to do my taxes again this year, and I'm sure he can answer this but I'd like to feel knowledgeable and ask some questions comfortably here. This is the first year I don't qualify for the QBI (above the threshold). I have a K1 from my primary place of employment as a physician and I also do consulting work and have a solo k dedicated just for that. As points of clarification, I have questions:
    1. now that I don't get QBI, I should feel good about optimizing my solo K since this should reduce my taxable income from that source, yes?
    2. Had I been under QBI threshold for total taxable income, would I have been able to reduce BOTH my K1 generated income AND consulting revenue income by the 20% deduction? In which case the more I put in the solo k, the less deduction I would have taken from QBI for that source of income?

    I'm sure I have more questions but I'd like to start with these, just to make sure I am making the right decisions regarding solo K contribution from consulting revenue to maximize my tax strategy.

  • #2
    When you say you're above the threshold, do you mean completely phased out or in the phaseout range?

    If you're completely phased out and your 401(k) contributions don't put you into the phaseout range, the benefit is the contribution times your marginal tax rate.

    If you're in the phaseout range, your benefit for 401(k) contributions is amplified by the additional QBID that you get as a result of the lower taxable income.

    If you're below the bottom of the phaseout range your 401(k) contribution benefit is reduced by 20%.

    If you do have a QBID calculated, it does reduce your total taxable income which includes income from all sources. It's on line 13 of Form 1040.

    The 20% deduction itself is based on your qualified business income, which is your K-1 (assuming no guaranteed payments) and your consulting income presumably reported on Sch C reduced by 1/2 of SE tax, self-employed health insurance, and 401(k) contributions.

    Then you calculate the QBID by taking into account the applicable phaseout ranges.

    Once the deduction is calculated it goes on Line 13 and reduces your overall taxable income.

    QBI is a complex topic. At a CPE conference we spent four hours going over the details.