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Taxpayer TI exceeds $500,000 but QBI still allowed - WHY?

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Level 5

My client has taxable income of $550,000. The $550K consists of a $50K W-2 and also a Sched K-1.

On the Sched K-1, there is $130,000 of ordinary income and $370K or guaranteed payments. So it's a pretty simple scenario.

I thought when taxable income exceeds the $421K phase out limit, you cannot deduct QBI.

Am I supposed to exclude the $370K guaranteed payments from the $421K phase out limit (effectively lowering that higher end of the phase out range)?  

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Level 2

The phaseout applies if the business is a Specified Service Trade or Business (SSTB). Does your client's business fall into this category? If not then there is no income phaseout. If the activity is a SSTB then make sure you check the box indicating this on the input sheet. The location of the checkbox for SSTB depends on where you are entering the info.

You mention Guaranteed Payment to Partners so I assume you have a K-1 1065. On the input sheet for the K-1 enter all the numbers provided to you from the K-1.  On line 20Z quickzoom to the input sheet where you will be able to provide the QBI details including SSTB options

 

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Level 2

The phaseout applies if the business is a Specified Service Trade or Business (SSTB). Does your client's business fall into this category? If not then there is no income phaseout. If the activity is a SSTB then make sure you check the box indicating this on the input sheet. The location of the checkbox for SSTB depends on where you are entering the info.

You mention Guaranteed Payment to Partners so I assume you have a K-1 1065. On the input sheet for the K-1 enter all the numbers provided to you from the K-1.  On line 20Z quickzoom to the input sheet where you will be able to provide the QBI details including SSTB options

 

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Level 10
Level 10

Is it a 1065 K1, or 1120S k1 

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Level 10

If it's not an SSTB then the wage/property limits come into play.  So if there are no assets and no wages paid then I agree there should be no QBI.  But presumably one or both of those things was communicated via the K-1.