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self-employed client has Defined Benefit contribution. But, in Lacerte, this DB contribution does not reduce QBI from net profit in Schedule C. Is this correct?
For example, he has $100,000 net incomes and contribute $60,000 to his DB in 2018. Lacerte show QBI for $96,900 (just reduce 1/2 of self-employed taxes), and he will have 20% QBI deduction on this $96,900.
I thought retirement plan contribution should be back out of QBI.
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This was implemented in an update on 3/19. I just checked my Lacerte and I do see when I click on the WKS for line 9 that the Defined Benefit is reducing QBI.
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This was implemented in an update on 3/19. I just checked my Lacerte and I do see when I click on the WKS for line 9 that the Defined Benefit is reducing QBI.
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DB contribution to a qualified plan for the self-employed individual is deductible on Line 28. Deduction for contributions for employees are, on the other hand, deductible on Sch C.
It does not appear Lacerte/PTO are taking the DB contribution into account even though it does correctly take into account SEP-contribution deductions. This is clearly a glitch that should be fixed.
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Why is my total Qualified Business Income (QBI) being reduced for one-half self-employment (SE) tax, SE health insurance, and/or certain other retirement plan contributions?
Solution:
The total Qualified Business Income is reduced by these amounts based on Section 199A Regs. This information can be found beginning on page 43, in the section for '5. Treatment of Other Deductions' which states;
The Treasury Department and the IRS have not adopted these recommendations because they are inconsistent with the statutory language of section 199A(c). Whether a deduction is attributable to a trade or business must be determined under the section of the Code governing the deduction. All deductions attributable to a trade or business should be taken into account for purposes of computing QBI except to the extent provided by section 199A and these regulations. Accordingly, §1.199A-3(b)(1)(vi) provides that, in general, deductions attributable to a trade or business are taken into account for purposes of computing QBI to the extent that the requirements of section 199A and §1.199A-3 are otherwise satisfied. Thus, for purposes of section 199A, deductions such as the deductible portion of the tax on self-employment income under section 164(f), the self-employed health insurance deduction under section 162(l), and the deduction for contributions to qualified retirement plans under section 404 are considered attributable to a trade or business to the extent that the individual’s gross income from the trade or business is taken into account in calculating the allowable deduction, on a proportionate basis. The Treasury Department and the IRS decline to address whether deductions for unreimbursed partnership expenses, the interest expense to acquire partnership and S corporation interests, and state and local taxes are attributable to a trade or business as such guidance is beyond the scope of these regulations.
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What have you found that says otherwise? Whether a deduction is to be taken as an above-the-line deduction is not relevant. The sole consideration is whether that item is attributable at a qualified trade or business as determined by the existing code section and regulations.
We always end up providing citations to back up what we believe is the correct tax treatment but Intuit either will not or cannot provide any citation to back up its position or rebut ours.
Hope to get a clear update from your team soon.
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