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Is QBI reduced again by the S shareholder for Health insurance?

Forum|Forum|6 years ago
December 7, 2019
7 replies
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Is QBI reduced again by the S shareholder by the amount of his/her Health Insurance taken as above the line deduction? The K-1 income has already been reduced at the entity level by the wages paid that includes shareholder health insurance.

https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-provision-11011-section-199a-qualified-business-income-deduction-faqs

Q33. Health insurance premiums paid by an S-Corporation for greater than 2% shareholders reduce qualified business income (QBI) at the entity level by reducing the ordinary income used to compute allocable QBI. If I take the self-employed health insurance deduction for these premiums on my individual tax return, do I have to also include this deduction when calculating my QBI from the S-Corporation?

A33. Generally, the self-employed health insurance deduction under section 162(l) is considered attributable to a trade or business for purposes of section 199A and will be a deduction in determining QBI. This may result in QBI being reduced at both the entity and the shareholder level.

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Best answer by TaxMonkey

Yes.

T

TaxMonkeyAnswer

Level 7

Yes.

itonewbie

Level 15

According to the FAQ, yes, as TaxMonkey says. Many, however, argue it is not fair, for the reasons you stated.

Some are falling in line with the FAQ issued at the 11th hour while others are contemplating what they'd do with returns that they filed with a different position before the time of publication. There are yet others who still believe that the FAQ carries no authority (and is not even affirmative in using "may" as the modal verb), which means it comes down to whether one believes the Final Regulations require this duplication or not and, therefore, whether disclosure may be necessary.

As we previously discussed (in this link), the plain reading of the reg does seem to suggest that it is required but the final clause of the subsection is what might open this to interpretation: https://accountants-community.intuit.com/questions/1799581-lacerte-says-the-qbi-deduction-is-not-affected-by-s-corp-shareholder-self-employed-health-insurance-but-final-irs-regs-and-pub-535-don-t-seem-to-exclude-it-who-s-right

In other words, there doesn't seem to be a consensus on this and the IRS is not helping. Just know that you're not alone in this.

---------------------------------------------------------------------------------Still an AllStar

itonewbie

Level 15

May also pick the battle to fight. Assuming SEHI is $12,000, the max tax effect at 37% is only $888. How much would you charge for preparing a F.8275, especially if the cost impact is smaller and in light of how the regs and the FAQ are worded (until clearer guidance is issued).

---------------------------------------------------------------------------------Still an AllStar

itonewbie

Level 15

Just a minor update on this topic. The IRS ran a §199A webinar for tax practitioners on May 30. This question (which sounds self-planted with no follow-up) came up at 1:08:08 during the webinar and the IRS' response is that SEHI could reduce QBI at both the S corp and shareholder level. They are still talking about this based solely on SEHI being attributable, generally, to a trade or business and did not address the crux of the issue.

https://www.irs.gov/businesses/small-businesses-self-employed/webinars-for-tax-practitioners#Qualifi...

---------------------------------------------------------------------------------Still an AllStar

A

accoun5

Level 5

Currently, as of 6/9/19, Lacerte software is not deducting the more than 2% shareholder health insurance from QBI at both the S Corp and shareholder level? Is Lacerte going to update the software to comply with IRS FAQ 33?

A

accoun5

Level 5

In Lacerte 2022 individual module screen 20.2 above line 17 input there is a checkbox saying "Reduce QBI by self-employed health insurance deduction."

K

ketchamifyoucan

Level 2

Drake does it.

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