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  • 199a deduction as locum doc

    Hello,

    I am currently a W2 compensated physician but exploring the tax ramifications if I were to pursue locums work instead. If I were to pursue 1099 locums work, I understand I would be considered a specificed service business as a sole proprieter. My understanding is the QBI would begint to phase out for me at taxable income > $315k when filing MFJ. If I were pursuing locums work, my understanding of the market is my gross salary would be approximately $400k. If I were to max out employEE/employER 401k contributions for a total of $59k, a full HSA deduction ($7200), the self-employment tax deduction of ~$11k as well as the standard deduction of ~25k, that would get me close to the phase out. Would a defined benefit plan (or some other strategy) be available to further reduce my taxable income? If my taxable income as a sole proprieter physician were $315k, my section 199a (QBI) deduction would be 20% of $315k or $63k deduction- is that correct? Given the above, would be final taxable income be ~250k (315k-63k)? Apologies for the simplistic nature of elements of this- just trying to examine what the tax implications would be. I've reviewed the WCI articles on QBI but please direct further resources my way that you think may be helpful. Thanks again.

  • #2
    • The 2021 QBI MFJ phaseout starts at $329,800
    • The 2021 maximum annual addition limit is $58K
    • The 2021 HSA family contribution limit is $7200
    • Only 1/2 SE tax is deductible
    • Self-employed base QBI is not based on taxable income It is = net profits - 1/2 SE tax - self-employed health insurance deduction - pre-tax (employee deferrals + employer contributions).
    • Taxable income determines what if any phaseout occurs.
    Using 2021 limits: $329,800 (business profits - 1/2 SE tax) - $18,000 self-employed health insurance - $58,000 pre-tax contributions to an employer retirement plan = $253,800 base QBI. Base QBI deduction $253,800 * 20% = $50,760.

    Taxable income = AGI (all income and adjustments (including those from self-employment)) - standard or itemized deductions without applying the QBI deduction. It is this number that determines if the base QBI/QBI deduction is phased out. Only then is the QBI deduction applied.

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