Business is run through an S-corporation.
The owner wants to take the QBI deduction and asks if the salary portion of his compensation is deducted to determine QBI. I haven't been able to find an answer to this. From a logical standpoint it seems to me that it would be deducted. But from a policy standpoint that might go against the reason for the QBI deduction in the first place.
Any thoughts? Thanks.
Reasonable compensation, (the salary they pay themselves in the S Corp), is excluded from QBI. If your S-Corp makes $100,000 and you pay yourself a salary of $70,000, you only get the QBI deduction of the remaining $30,000. Here is a list of all of the exclusions from Qualified Business Income courtesy of IRS.com:
QBI does not include items such as:
Items that are not properly includable in taxable income Investment items such as capital gains or losses Interest income not properly allocable to a trade or business Wage income Income that is not effectively connected with the conduct of business within the United States Commodities transactions or foreign currency gains or losses Certain dividends and payments in lieu of dividends Income, loss, or deductions from notional principal contracts Annuities, unless received in connection with the trade or business Amounts received as reasonable compensation from an S corporation Amounts received as guaranteed payments from a partnership Payments received by a partner for services other than in a capacity as a partner Qualified REIT dividends PTP income
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