2018 Tax Code Update QBI

[runfast00]

We met with our accountant today for an update on the 2018 tax code changes.

Background: Private medical practice structured as an LLC and we own our buildings in an LLC

 

The QBI (Qualified Business Income) could really turn out to be a big deduction as we are under 315K MFJ and no exemptions to QBI apply.

 

My question is: I want to do a Roth Conversion this year of my SIMPLE IRA because QBI is an extra deduction and the tax brackets have changed more favorably for me.  I have about 75K in a Simple and would covert all of it.  My question involves the pro rata calculation.  Is this an individual retirement calculation (excluding my wife accounts). Or because we file jointly does it include her retirement accounts.

[jacoavlu]

Pretty sure your conversion would add $75k to your AGI. Assuming you (not your wife) have no basis (non deductible amount) in IRAs.

But I’m not a CPA.

[Bmac]

Out of curiosity, why can’t your accountant answer this question?

[Dr. Mom]

1.  Retirement accounts are not joint.  So pro rata is separate for each of you.

2.  Be mindful of what jacoavlu wrote.  Don't be surprised if you convert it all and end up with an income over the 315K MJF mark which would cause you to lose some of your QBI deduction. Discuss this with your accountant.  You may want to convert over several years if needed.  If your income will be rising alot over the next few years where you lose some of the deduction anyway, it might not matter.  Lots of moving parts to this decision.

[jacoavlu]

also, I haven't read up since the recent IRS release of more details on the QBI. But last I knew, the 20% deduction was perhaps coming as a credit and not as an above the line deduction. So, the QBI deduction itself may not decrease your AGI. I may be incorrect about this. Something also to discuss with your accountant.

[Peds]

runfast00 wrote:

My question is: I want to do a Roth Conversion this year of my SIMPLE IRA because QBI is an extra deduction and the tax brackets have changed more favorably for me.  I have about 75K in a Simple and would covert all of it.  My question involves the pro rata calculation.  Is this an individual retirement calculation (excluding my wife accounts). Or because we file jointly does it include her retirement accounts.

Click to expand...

i think you are confusing two entities:

- if you convert a SIMPLE to a rIRA, the 75K will be added to your income. this will open the backdoor rIRA for you because of the prorata calculation assuming no other IRAs. her accounts dont matter for you.

- your wife can also do the backdoor rIRA as long as she has no sep/simple/IRAs. your accounts dont matter for her.

- however her AGI is your AGI as MFJ.

[spiritrider]

On the 2018 draft Form 1040.

The QBI deduction on Line 9 is a "below the line" deduction. The AGI is on Line 7.

[jfoxcpacfp]

1. Make sure you have had your SIMPLE open at least 2 years before you convert or you'll owe a 25% penalty (pretty sure that's the case with $75k balance, but for other readers...)


2. As others have stated, the conversion could easily put you above the threshold to lose some or all of the deduction (not credit).


3. If #2 is the case, consider splitting the conversion between 2018 and 2019, or over as many years as needed. If you convert it all in the next 2 years, you can begin backdoor Roth's for 2018. Double up between 1/1/19 and 4/15/19 for both years and you'll be able to get $22k in your and your wife's Roth IRAs at once. Just be sure to empty the SIMPLE by 12/31/19. If you are still working for the employer with SIMPLE coverage, that means converting all annual contributions before 12/31/xx each year.