Question 2 of 50. How does the qualified business income (QBI) deduction apply to a pass-through entity? Income generated by a pass-through entity may not be used for the QBI deduction The entity will take the allowable deduction lowering their ordinary income to be reported to the partners or shareholders. The entity will take the allowable deduction and report it on the Schedules K-1 as capital losses. Reported on the Schedule K-1 will be each partner or shareholder's share of QBI items which will then be reported on their individual returns. Mark for follow up Question 3 of 50. How are capital gains on Form 11205 taxed? The S corporation will report and pay the tax when submitting their Form 11205 for the tax year tax with their Form 1040. Capital gains from an S corporation are generally not taxable because they are treated like qualified dividends. Each shareholders portion of the capital gain will be reported to them on their Schedule K-1 (Form 1120S) and they will pay the When submitting their Schedule K-1 to the IRS, each shareholder will pay their taxes owed