IRC Section $199$A

A provision of the Internal Revenue Code was created under the Tax Cuts and Jobs Act of $2017$: Section $199$A$,$ which permits owners of sole proprietorships, S corporations, or partnerships to deduct up to $20\%$ of the income earned by the business. This simulation is designed to test your knowledge of the new section.

For each of the scenarios presented below, select the most appropriate answer.

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$1.$ Aisha does business as a sole proprietor managing an online digital music publication site. Aisha is a single filer with taxable income of $$150,000$ and qualified business income of $$140,000.$ Aisha has one employee, and the company$$s total W$-2$ wages for $2023$ were $$70,000.$ The business buys a synthesizer for $$60,000$ and places it in service in $2023.$ For tax year $2023,$ what is the limitation on Aisha$$s Section $199$A deduction?

$2.$ Aisha does business as a sole proprietor managing an online digital music publication site. Aisha is a single filer with taxable income of $$183,000$ and qualified business income of $$140,000.$ Aisha has one employee, and the company$$s total W$-2$ wages for $2023$ were $$70,000.$ The business buys a synthesizer for $$60,000$ and places it in service in $2023.$ For tax year $2023,$ what is Aisha$$s Section $199$A deduction?

$3.$ Jeremy is a small business owner of two Section $199$A qualified businesses. In Year $1,$ he has qualified business income $($QBI$)$ of $$30,000$ from Remy, Inc., and a qualified business loss of $$50,000$ from J$-$Rem Co$.$ Assume Jeremy is not permitted a deduction for Year $1.$ In Year $2,$ Jeremy has QBI of $$40,000$ from Remy, Inc., and QBI of $$20,000$ from J$-$Rem Co$.$ What is Jeremy$$s Year $2$ Section $199$A deduction? $($Assume the $2023$ tax laws apply for Year $1$ and Year $2.)$

$4.$ The deductible amount of QBI is subject to a second limitation equal to the excess of taxable income for the year, over the sum of net capital gain plus the aggregate amount of the qualified cooperative dividends for the tax year. Trevor, a married taxpayer, has $$170,000$ of qualified business income, $$70,000$ of long$-$term capital gain, and $$40,000$ of deductions, totaling $$200,000$ of taxable income. For this second limitation$,$ Trevor$$s Section $199$A deduction is limited to: