QBI Mechanics

J

joeactuary

I've been using Mark to Marketing for several years now. I put my investment gain in form 4797. I then transfer just enough income to my schedule C to match my home office expenses and other expenses exactly. This allows me to get my full home office deduction while showing zero income for Schedule C, thus generating zero SE tx.

The problem is, that it appears my leftover profit in form 4797 doesn't transfer over to the QBI worksheets in TurboTax, so no QBI deduction. If I transfer the whole amount to Schedule C, I get the QBI deduction but I also get the SE tax. Anyone know the mechanics of getting the QBI deduction (which I think I'm entitled to) without triggering the SE tax (which I don't think I'm required to pay.)?
 
My initial thought is that you would need to include the QBI deduction amount in the transfer amount to schedule C, thereby showing a profit on C, so it can then be reduced to 0 with QBI.

It has been years since I did the schedule c transfer. I'm guessing the footnotes regarding QBI would be specifically and necessarily complex, if it is acceptable at all.

Remember, the transfer of trading gains to sched C, is for lack of a better term, an undocumented workaround originating from GreenTraderTax.com, specific to non-entity business traders (MTM + TTS). As the years have gone by, this strategy, along with tax-code changes, has become dangerous... fortunately you have successfully applied the scheme for several years, so that should mean something. Or it could be a big snowball!

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I file entity (s-corp) and individual taxes. I pay myself W2 wages. I take (SE-taxfree) distributions too. I am near the phase-out limit for QBI to have any usefulness for me. It really is a pain in the ass. For 2019, assuming taxcode and profits continue as is, I am paying myself more W2 wages and forgetting about QBI altogether.
 
Thanks for the reply. I'm really confident though to get the QBI deduction, you do not necessarily have to be a separate entity. I mean the IRS literally says "Eligible taxpayers may be entitled to a deduction of up to 20 percent of qualified business income (QBI) from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust or estate" I'm wondering on the mechanics of doing that though in our case. Or if TurboTax hasn't updated that "feature" yet.
 
I completely agree, an entity is NOT required. What IS required is a non-Ccorp structure, which does include sole props and SMLLC.

But you are also forgetting that the I in QBI stands for income. Business Trader (not an investor, not a hobbyist, not a investment company, not a registered broker-dealer, etc) has been and still is a bastard regarding IRS forms. And that a business-trader is a singled-out situation, with certain clearly defined requirements (MTM), AND other requirements based on facts and circumstance only, case-by-case(TTS). Both are required for the trader to even think about QBI, available only to a business-trader with those credentials, fits into SSTB (Specified Services Business or Trade) portion of QBI rules. The fact IRS forms do not comply is no surprise as a Business Trader SSBT is a one-off situation that the IRS does not recognize by default. I would not expect ANY online tax preparation offerings to provide that "feature".

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Yes, there is no specific Form for Traders or form for depreciating livestock or a hundred different specific scenarios, hence work arounds like the transfer of Income that has never been challenged by the IRS (to my knowledge). By Feature, I meant being able to go into Forms and create a QBI sheet. It's currently locked. Anyway, the IRS has never questioned the transfer of Income to Schedule C, just taxpayers who have claimed TTS, so my question is assuming TTS and of course MTM which provides the I (Income). Just looking for Mechanics of how to do so, by other non entity traders here. Or to ask a different way, I think there should be some flow through from 4797 Part 2 to a QBI worksheet and trying to figure out if I'm just wrong on this or if TurboTax hasn't updated this yet and I just need to wait.
 
If QBI is applicable only to business income, and your schedule C doesn't show income... Maybe TurboTax will devise a form that will allow anyone to convert capital gains, short and long term, into earned income! David Blaine holds the world record for holding breath under water... 17min 4secs.

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Good trading to you.
 
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What the heck are you talking about? No one said anything about converting capital gains to earned income. Nor does QBI require earned income. An obvious example is rental income which is decidedly not earned, not on Sched C, but is QBI. Just looking for Mechanics of doing this.
 
The mark-to-market income is probably not QBI - trading is generally not considered effectively connected with a trade or business conducted within the United States which is a requirement under Section 199A.
 
Adam E. Spence CPA said:
The mark-to-market income is probably not QBI - trading is generally not considered effectively connected with a trade or business conducted within the United States which is a requirement under Section 199A.
More...

Suggest you read (and verify) this article by Robert Green, a recognized expert in trader taxation... https://greentradertax.com/irs-confirms-traders-are-eligible-for-qbi-deduction/

The issue for the OP is that one (or more) 2018 online tax preparation offerings do not support IRS acceptable (and proven) but undocumented workarounds, which technically ARE available to business traders with MTM and TTS filing with a schedule C, as opposed to a straight-forward, with clear business intent entity (also with MTM and TTS) tax return.
 
Thanks - I am familiar with the article and the Section 199A regulations. Section 199A specifically precludes SSTBs, of which trading is one, and indicates that if the income is not effectively connected with a United States trade or business (the 864 exception) then it is not QBI. The issue is less so with forms but an incorrect technical analysis of the Section 199A deduction as it pertains to traders.
 
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