Scott and Laura are married and will file a joint tax return. Laura has a sole proprietorship (not a specified services business) that generates qualified business income of $300,000. The proprietorship pays W2 wages of $40,000 and holds property with an unadjusted basis of $10,000. Scott is employed by a local school district. Their taxable income before the QBI deduction is $386,600 (this is also their modified taxable income).

Click here to access the 2020 individual tax rate schedule to use for this problem.

Assume the QBI amount is net of the self-employment tax deduction.

a. Scott and Laura's QBI deduction is $fill in the blank 7fc068084fb901d_1, taxable income is $fill in the blank 7fc068084fb901d_2, and tax liability is $fill in the blank 7fc068084fb901d_3 for 2020.

Feedback

With the reduction in the corporate income tax rate to 21 percent in 2018, Congress needed to provide a means of reducing the taxes on businesses that operate in different business forms (e.g., sole proprietors, partnerships, and S corporations). Congress accomplished this with the creation of the deduction for qualified business income ( 199A), which applies to noncorporate taxpayers. To determine the qualified business income deduction, one has to understand the definition of a qualified trade or business and qualified business income.

b. After providing you the original information in the problem, Scott finds out that he will be receiving a $6,000 bonus in December 2020 (increasing their taxable income before the QBI deduction by this amount). Redetermine Scott and Lauras QBI deduction, taxable income, and tax liability for 2020.

Scott and Laura's QBI deduction is $fill in the blank af4a75fef05f02f_1, taxable income is $fill in the blank af4a75fef05f02f_2, and tax liability is $fill in the blank af4a75fef05f02f_3 for 2020.

Feedback

Incorrect

c. What is the marginal tax rate on Scott's bonus? Round your answer to one decimal place