According to the IRS, on the 20% QBI deduction:
If you're a non-service provider and your taxable income is $100,000 or more above the income threshold if married filing jointly, or $50,000 if single, your pass-through deduction is fully subject to a W-2 wage/business property limitation.
Thus, if you're married filing jointly, this limitation applies if your taxable income is over $429,800 ($214,900 if you're single). Your maximum possible pass-through deduction is 20% of your QBI, just like at the lower income levels. However, when your income is this high your deduction is further limited to the greater of:
- 50% of your share W-2 employee wages paid by the business, or
- 25% of W-2 wages PLUS 2.5% of the acquisition cost of your depreciable business property
#1 - Does this $214,900 limit pertain to the individual's income from ALL sources (so if they also have W-2 income not from this business, that W-2 income can exclude them from any QBI deduction), or does the limit only pertain to income from the business?
#2 - Does this mean that a sole proprietor who makes >$214,900 from their business cannot take any QBI deduction, but an S-Corp which pays an owner on a W-2 would be allowed to deduct up to 50% of those wages?
Question sparked by reading this Wolkers Kluwer Article:
Another possible advantage comes from the Tax Cuts and Jobs Act. That tax reform bill gives pass-through entities a 20% “qualified business income “ deduction.
However, businesses with taxable income above a certain amount don’t qualify unless they pay employee wages. Therefore, under some circumstances S corporation taxation can help an LLC qualify for the deduction.