Pub. 3 2021 Issue 5

S E P T E M B E R / O C T O B E R 2 0 2 1 16 nebraska cpas SMALL BUSINESS TAX FAIRNESS ACT WOULD CHANGE QBI DEDUCTION C P A I N S I D E R President Biden’s agenda includes a $3.5 trillion budget plan that provides for investments in the environment, healthcare, childcare, education, and a host of other social programs labeled “human infrastructure” by the White House. Moderate Democrats, whose votes are needed to pass any legislation, are asking how we pay for this massive proposal. One small piece of the payment plan is a proposed change to the Qualified Business Income (QBI) deduction. The Small Business Tax Fairness Act, S. 2387, has been introduced in the U.S. Senate by Sen. Ron Wyden (D-OR) and referred to the Committee on Finance. This legislation proposes changes to §199A, the deduction for qualified business income. The bill introduces a simplification of QBI calculations by raising the “threshold amount” substantially, for example, from $157,500 for a single taxpayer to $400,000, eliminating the criteria related to specified service trades or businesses (SSTB), and eliminating the formulas using wages and unadjusted basis in qualif ied property immediately after acquisition (UBIA) for SSTBs and non-SSTBs to calculate the QBI deduction for taxpayers above the threshold limits. Modification of the Threshold Amount The bill proposes replacing §199A (e)(2), which current ly states, “The term ‘threshold amount’ means $157,500 (200% of such amount in the case of a joint return),” with “The term ‘threshold amount’ means $400,000.” Presumably, the double amount for married taxpayers with joint f i ling would be $800,000, but this could be wishful thinking. We may have another marriage penalty arising from this bill if the married filing jointly (MFJ) threshold is raised to say $600,000, rather than $800,000. This proposed change for the threshold amount has the effect of limiting the QBI deduction to a maximum of $80,000 (20% of $400,000) for single taxpayers (also head of household, or HOH) and hopefully $160,000 for married taxpayers filing jointly. Married who file separately would get a zero QBI deduction under this bill. Revised Amount of Deduction for QBI A proposed change, rewriting the amount of deduction for QBI by striking all existing text in subsection (a) and inserting “an amount equal to 20% of the least of: “(1) the qualified business income of the taxpayer, “(2) the threshold amount, or “(3) the taxable income of the taxpayer for the taxable year reduced by the net capital gain (as defined in section 1(h)) of the taxpayer for such taxable year.” BY SHARON KREIDER , CPA AND JANE RYDER , EA, CPA