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Fixed Assets and UltraTax CS 2023 help is now on Help and Support. We're still moving articles, but you can find most content for the 2023 tax year there. Continue using the Help & How-To Center for tax years 2022 and older.
Overview
This article provides information on how UltraTax/1120 calculates the Qualified Business Income Deduction (QBID) under section 199A of the Internal Revenue Code, created by the 2017 Tax Cuts and Jobs Act.
An S Corporation cannot take the deduction itself; instead, the calculated amounts are passed through to shareholders on Schedule K-1, Box 17. Amounts reported on Schedule K-1 are unadjusted figures, which are then multiplied by the shareholder's ownership percentage. You cannot specially allocate these amounts, but you can force the amount of qualified business income for the activity in the Qualified business income (Force) field on Screen QBI if you disagree with the calculated amount.
Qualifying an activity
The application calculates an activity's qualified business income, W-2 wages, and qualified property when you enter 1 in the Qualifies as trade or business for section 199A field on Screen QBI for an activity.
Note: If you leave the Qualifies as trade or business for section 199A field blank on Screen QBI, the application assumes that activity does not qualify for Section 199A purposes.
The Section 199A Information Worksheet includes columns for multiple activities. You may mark more than one unit of Screen QBI in the Income & Deductions folder as a qualifying activity, however the application will no longer calculate the qualified business income or the W-2 wages for the Page 1 activity. You will need to enter an amount in the Qualified business income (Force), and W-2 wages (Force) fields for each Screen QBI unit. In addition, the Qualified property field on Screen QBI will transfer from the asset module for the first unit of Screen QBI. If the qualified property should be divided between all Screen QBI units, you will need to change the amount transferred from the asset module.
How QBI is calculated
Business Income
The qualified business income for each activity is equal to the respective net income, except for income from the Page 1 activity. The qualified business income from a Page 1 activity is equal to Schedule K, line 1 less the income from a farm activity and a pass-through entity.
W-2 Wages
The application uses the wages entered in the following fields for each activity reported on the Section 199A Information Worksheet.
You can also force the amount of W-2 wages for the activity in the W-2 wages (Force) field on Screen QBI if the wages entered in the input screens are not the Form W-2 wages.
Each member of the consolidated S Corporation that qualifies as a trade or business for Section 199A will need to force the amount of qualified business income and W-2 wages on Screen QBI in the Income and Deductions folder.
Qualified Property
The qualified property amount transfers from the asset module. Assets are treated as qualified property if they are tangible depreciable assets held in the trade or business at the close of the tax year and the depreciable period has not ended before the end of the tax year. Depreciable period is the later of: ten years after the asset was placed in service; or the last year of the recovery period. Show me an example.
Allocating qualified property to the shareholder
Based on regulation 1.199A-2(a)(3)(iii), each shareholder’s share of the qualified property is proportionate to the ratio of shares in the S Corporation held by the shareholder on the last day of the taxable year over the total issued and outstanding shares of the S Corporation.
However, taxpayers may rely on the rules set forth in the proposed regulations under 1.199A-1 through 1.199A-6 issued on August 16, 2018, in their entirety, for taxable years ending in calendar year 2018.
Mark the Allocate Section 199A unadjusted basis of property to shareholders based on end of year shares on Screen KSep in the Schedule K folder if you wish to follow the final regulation for allocating the qualified property to the shareholder. If this field is blank, UltraTax/1120 allocates the qualified property to the shareholder based on the ratio of shares in the S Corporation held by the shareholder over the total shares of the S Corporation.
Additional Information
Worksheets
Qualified Business Income and Section 199A worksheets are available in Forms view and supporting statements will print with the worksheets as necessary. For instance, the Section 199A Worksheet will automatically print when you enter 1 in the Qualifies as trade or business for section 199A field on Screen QBI.
Notice 2019-07, Section 199A Trade or Business Safe Harbor
To print the Section 199A Trade or Business Safe Harbor statement required under Notice 2019-07, enter X in the Section 199A safe harbor field on Screen QBI of each Rent & Royalty or Farm Rental activity that is included in the statement. This statement must be signed by an officer of the corporation and attached to the return. If the return is being filed electronically, the statement must be signed and attached as a PDF.
Section 1377 election
When the S Corporation makes a Section 1377 election, you should enter the Section 199A amounts in Screen 1377-4 in the Shr Allocation folder. The application does not print the Shareholder’s Section 199A Information worksheet, but the applicable Section 199A codes print on the Schedule K-1. You will also need to indicate whether or not the qualified business activity is a specified service in the View > Shareholder Information > Other Info tab > Supplemental information statement dialog.
Section 199A safe harbor custom paragraph
If you've modified the filing instructions or federal instruction inserts, you can insert the Section 199A safe harbor custom paragraph by following one of the procedures below.
If you have modified the filing instructions...
If you have modified the federal instruction insert...
Troubleshooting
If you do not receive the result you expect, see Qualified business income deduction calculations and troubleshooting for more details on the calculations and instructions for correcting common data entry problems.
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