Qualified business income deduction calculations and troubleshooting (1120)

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Use this article to determine how and where the Qualified Business Income is calculating and how to correct any QBI amounts you disagree with. If you are looking for information on how to enter QBI information, see the Qualified business income for pass-through entities overview.

Calculations

Where does my Qualified Business Income calculation appear in the return?

Section 199A Information Worksheet

This worksheet lists each activity’s qualified business income, W-2 Wages, and other information when you enter 1 in the Qualifies as trade or business for section 199A field on Screen QBI in each applicable activity. It appears in the QBI folder in Form View.

Note: The worksheet does not include activities that does not have this field marked in Screen QBI.

Tax Projection Worksheet – Qualified Business Income Worksheet

This worksheet is generated using the Screen QBIProj in the Review folder. If a field is blank and is not denoted with an asterisk (*), the application uses the amount from the 2018 Schedule K. This worksheet appears in the QBIProj folder in Form View.

Where does the Qualified Business Income show on my shareholder’s Schedule K-1?

The QBI information appears on the Schedule K-1, box 17 with codes V - Z. When data sharing to a 1040 return from an 1120S return, these fields populate Screen K1-7 in the 1040 client.

Also included with the K-1 is a Schedule K-1, Box 17 Codes V, W, and X Shareholder’s Section 199A Information Worksheet that breaks down the activities and amounts appearing on the K-1, box 17. This worksheet is in the Shr folder in Form View, on the Qualified Business Income tab.

Troubleshooting scenarios

Assets

  • Select the Asset tab within the activity, go to Setup > Activity, and answer Yes to the Qualifies as trade or business for Section 199A field. For specific assets that do not qualify as Section 199A, go to the Other tab within the asset and mark the Exclude asset from qualified business income deduction field.
  • If all information except Qualified Property appears on the worksheet, such as the activity name and qualified income, try the following:
    1. Go to Screen QBI in the related activity and remove the data on the screen by choosing Edit > Delete screen data.
    2. Open the Asset tab within this activity to re-initiate the Qualified Property amount datashare to the QBI screen.
    3. Go back to the QBI screen within the activity to verify the Qualified Property amount is populated from the asset module and add back any missing information to this screen.
    4. Open the Section 199A Information Worksheet to verify the Qualified Property now appears.

The Exclude asset from qualified income deduction checkbox is only available for assets that qualify for the Qualified Business Income Deduction (QBID). Assets qualify if they meet one of the following criteria:

  1. It has been 10 years or less from the date it was placed in service, or
  2. It has been greater than 10 years the asset was placed in service, but the asset is still within its recovery period, or the last full year of the recovery period.

Verify that at least one activity has the Qualifies as trade or business for Section 199A field marked in the activity’s Asset tab, in the Setup > Activity screen.

Verify all qualifying assets are assigned properly by going to the Asset tab for the affected activity and choosing Edit > Reassign Assets, and reviewing each activity in the Activity drop-down. For more about reassigning assets, see Reassigning assets to a different activity.  

In the assets in question, you can use the Basis for business income deduction (force) field to specify how much basis should be used for each asset as needed. The amount that you enter here will be used as the cost basis on the Qualified Property report, and it will also change the amount that the tax return uses if you are using UltraTax CS. This field is available when you mark the that the activity qualifies as a trade or business for Section 199A under Setup > Activity.

To clear this diagnostic and print the Qualified Property report, navigate to the activity with Qualified Property assets, to the Asset tab, and go to Setup > Activity and answer Yes to the Qualifies as trade or business for Section 199A field.

Miscellaneous

This diagnostic appears when an activity is populated at all and does not have an answer on the Screen QBI, Qualifies as trade or business for section 199A field, including the Income & Deductions folder, Screen QBI. This diagnostic does not prevent e-filing, but the field is crucial to the calculation of the Section 199A if the property qualifies.

These worksheets will print when you enter 1 in the Qualifies as trade or business for section 199A field on Screen QBI for at least one activity.

This information is entered in either the K1 1065, 1041 folder, Screen K1-3, on field Domestic production activities deduction from cooperatives or the Farm folder, Screen QBI, using the Cooperative’s QPAI deduction alloc to patron and identified in writing by cooperative field.

Note: If the cooperative’s deduction affects a shareholder involved in a qualifying disposition or termination, navigate to Screen 1377-2 in the Shr Allocation folder to use the Domestic production activity deduction from cooperatives field.

Enter Section 199A amounts in Screen 1377-4 in the Shr Allocation folder after entering the termination date for the IRC 1377 or 1368. For instructions regarding how to enter termination dates, see Preparing an 1120S return for a shareholder with a qualifying disposition or termination of interest during the tax year.

After entering the amounts, indicate whether the activity is a specified service in the View > Shareholder Information > Other Info tab > Supplemental information dialog.

Note: The application does not print the Shareholder’s Section 199A Information Worksheet for this shareholder, but the applicable Section 199A codes print on the Schedule K-1.

When the Qualifies as trade or business for Section 199A field is answered with a Yes for this activity, the Officer’s Compensation is allocated to all shareholders based on their ownership percentage. Per Section 199A(f)(1), “Section 199A applies at the partner or S Corporation shareholder level, and each partner or shareholder takes into account such person’s allocable share of each qualified item.”

In the Income & Deductions folder, check the following:

  1. If there are multiple QBI units for this screen and more than one unit has a 1 in the Qualifies as trade or business for Section 199A field, the application does not calculate Section 199A W-2 wages as it does not know which activity to apply them to. Use the W-2 wages (Force) field for the applicable unit to report the wages under the correct QBI unit.
  2. If there is only one QBI unit for this screen, verify that a 1 is entered on the Qualifies as trade or business for Section 199A field and that there is no amount on the W-2 wages (Force) field that might reduce the actual W-2 wages.

There are is no QBI input in 1120-C returns because QBI does not apply to C Corporations. Check the return type of the client in File > Client Properties. 

 

The custom paragraph prints in the main return filing instructions when you select the custom paragraph Sign Section 199A Safe Harbor Stmt (FI) on the Letter screen in the General folder.