QBI Mechanics

[tiddlywinks]

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.

We will agree to disagree.

The final 199A regs acknowledge the uncertainty and tax writers fixed it in the above language. They opened the door for Section 1231 losses to include more items like Section 475 ordinary income/loss, reiterating that it must not be on the Section 954 list, which Section 475 is not.

The proposed and final 199A regs state that traders eligible for trader tax status are a “specified service activity” (SSA), so the SSA taxable income (TI) cap applies. Taxpayers who make one dollar over the TI cap will not be allowed a QBI deduction on SSA QBI. On the other hand, non-SSA activity is not restricted to the TI cap, although the W-2 wage and property limitations apply over the TI threshold.

It's more crucial to qualify for TTS then ever before.

 

[Adam E. Spence CPA]

Trading on your own account is not effectively connected with a US trade or business under IRC Section 864. Therefore, under Section 199A(c)(3)(A)(i), trading income would not qualify as QBI. The dis-allowance is right there in the code section and cannot be avoided by parsing words from regulations.

 

[tiddlywinks]

Trading on your own account is not effectively connected with a US trade or business under IRC Section 864. Therefore, under Section 199A(c)(3)(A)(i), trading income would not qualify as QBI. The dis-allowance is right there in the code section and cannot be avoided by parsing words from regulations.

Clearly, you do not subscribe to Green being a/the recognized expert SPECIFICALLY in trader taxation. My experience (as trader) with and without Green as my CPA spans over a decade. At times this included individual, de facto partnership, and/or formal entity tax filings, AS A BUSINESS TRADER and/or TRADING BUSINESS, with MTM elected and qualified for TTS as necessary on the individual and/or entity level. Unadjusted has always been top 10% or more, so no skirting the radar. No audits or problems, tyvm. For others, mileage may vary.

Have a good tax season!

 

[Adam E. Spence CPA]

Thanks - tax reform is going to make things "interesting"; especially the business interest expense deduction limitation though I suspect it may not apply to the retail traders on this site.

 

[Adam E. Spence CPA]

https://greentradertax.com/uncertainty-about-using-qbi-tax-treatment-for-traders/

As an update to this discussion, please see above link for an article by Green Trader tax. My thoughts - absent a private letter ruling or something concrete from the IRS or Congress, each taxpayer will need to determine their comfort level with taking the position that 475 income is QBI. That answer may depend on the preparer and their confidence in that position; with most tax preparers needing at least a 30% likelihood of success of being upheld in an audit to sign the return. Given the uncertainty, I am unsure whether such a position would require disclosure on the return on Forms 8275 or 8275-R; disclosing offers some protections but highlights that something odd is on the return so there are pros and cons to disclosing.

 

[vm81]

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.)?

You said that you have used schedule c and income transfer strategy for years. Can you share the specifics as to how it works - what steps do i take for that, what others forms, how do I show this transfer? Also - what do I need to show in footnotes? I am assuming you cant efile because these tax software dont let you include footnotes.

Thanks for any help you can provide

 

[tiddlywinks]

Thanks for the followup @Adam E. Spence CPA

I determined a few weeks ago that being close to QBI thresholds/phase-outs/complexities was a pain in the ass for the "savings" I would get.

I saw this Green post too, and am following the extension advise (1120S and 1040), now with expectation that QBI, will not apply. But we will see. It is silly NOT to take if my trading operation qualifies, and is deemed lawful.