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welcome back to money in life TV everybody how y'all doing out there this
is the channel where you can come to to learn about finances investing and taxes
we are about to start part two the final part of helping you understand the 199A
a qualified business income deduction now if you haven't seen the first part
make sure you go back and watch that video first I'm gonna leave links in the
description section and in the comment section it's very important you watch
that first because in the first part of this series it's gonna help you
understand the rules and the overall ideas behind this new 20% business tax
deduction after you've watched the first part to this series come back to this
video and we're gonna look at some calculation examples on screen this
excel document that I'm showing you on screen right now has five full
step-by-step calculation examples and once you go through these and once we go
through these I think the rules part of it is gonna make a lot more sense it's
hard to understand the rules by themselves it's hard to understand the
calculations by themselves but won't you know both then this deduction starts to
make sense so that's how I recommend you learn it so after filming this video and
after watching it after taking time to edit it I realized there was points of
clarification I needed to add now I just wanna make it very clear that this video
is going to help you tremendously understand the deduction but it's not
gonna take you all the way I have to be brutally honest the real this stuff is
so technical ladies and gentlemen that's the only way you're truly gonna
understand it and the best way to learn it is to do some self-study you have to
invest some time learning this stuff I can't teach you this in five minutes 10
minutes 15 minutes this is a subject that you need to invest some of your own
time and your own self-study to learn so I want to make that clear I really think
this video is gonna help you a lot with the understanding of it and so it's part
one but I don't want to miss guide you or mislead you you're still gonna have
to invest some of your own time to really understand this because I'm not
here to BS you but I think you guys will get a lot of this video I've included
several sound bites and clarification tips throughout this video and some fun
ones as well to keep you guys engaged so I hope you enjoy it let's keep on moving
forward so I'm gonna cover three examples with you on screen this video
and two of them you can just look at for yourself do some self-study and then
we'll go from there so without further ado let's not waste any time let's
go ahead and dive right into it let's go ahead and start with example number one
an example of one we're looking at an ax taxpayer when their income is below the
qbi deduction phase-out ranges which we discussed the last video
okay guys chipper has stopped me right here and he's told me if you don't take
some time to clarify some of this stuff you're gonna confuse the hell out of
people and we don't want to do that so throughout the video as we look at these
examples I'm gonna be talking about this qbi income phase-out don't know what
does that mean well we're gonna be looking at every
example in this video it's gonna be based on a single filing status so
chipper is gonna be our example and he's a single filer and so that his key
bi-phase out in terms of his taxable income begins at one hundred and
fifty-seven thousand five hundred so when I say his income is below the qbi
income phase-out it means his income is less than one hundred and fifty seven
thousand five hundred if I say his qbi income is in-between the phase-out it
means his income is between one hundred fifty seven thousand five hundred and
two hundred and seven thousand five hundred if I say his qpi income is above
the qvi phase-out it means his taxable income is above two hundred and seven
thousand five hundred so I that's what I mean when I'm talking about qbi income
phase-out and this chart shows it right here now like I said all the examples
are gonna be based on a single filer I did that so for consistency so you don't
get confused between one filing status and the other if you're married filing
joint there's no difference in the calculation the only difference is that
you have a higher qbi income phase-out range so in other words you can your
taxable income can be higher before this deduction starts to phase out for you so
if you're married filing joint as you can see on the chart your taxable income
has to be hit above three hundred fifteen thousand before it even begins
to phase out whereas if you're a single filer once your taxable income hits one
hundred fifty seven thousand five hundred your deduction starts to become
limited beyond that point let's continue this taxpayer has no capital gains and
as an important you're gonna see why an
example number two so here's the facts of this situation chipper operates as a
sole proprietor he files a Schedule C on his tax return chipper manufactures bird
cages his bird cages are not considered a specified service business and that's
because he's a manufacturer he doesn't provide services he makes it sells bird
cages now this is chippers only business and we're gonna discuss multiple
business is by the end of this video but let's just focus on one business example
of the time so chipper is single he's not married because he's single and
ready to mingle his net qualified business income is
nets to be a one hundred and forty thousand dollars in this example
chippers taxable income before the qbi deduction is taken into account is one
hundred and ten thousand dollars chipper has zero
like I said in net capital gain so no capital gains here to report and a
reminder the twenty percent deduction for key bi is limited to the lesser of
the net qbi or taxable income reduced by any capital gains but before the qpi
deduction so here's chippers taxable income so net qbi is 140 taxable income
is 110 so this is how in this example it's calculated so we because his
taxable income is lower 110 is lower than 140 we start with that and it's
very simple we take the hundred and ten thousand dollars and we multiply it by
the 20% so chippers qbi deduction in this example this very very simple
example is $22,000 that he's gonna report on 1040 page 2 line 9 which is
right here guys and this is a draft of the new forms obviously the new forms
aren't fully released yet but this is where you would expect this deduction to
show up so chippers taxable income would be reduced by $22,000 based on this
example so this is one of the easiest examples and now we're gonna get they're
gonna get harder as they go they're gonna get more complicated as you'll see
it was gonna be that easy did you you know for a second there yeah I kind of
did silly rabbit so just real quick I'm not gonna do the
full walkthrough on example number two example number two is just like example
number one the only difference in this example is that chipper does have some
capital gains so chipper has that it's the same business income but he has
taxable gains of $8,000 so what we have to do is we have to reduce his taxable
income by 10,000 and so when you reduce when we do that his net taxable income
that is used for this qpi calculation is 102 thousand dollars so it's it's just
the same rules once again it's to do the calculation you take the lesser of your
qualified business income 140 or the lesser of your taxable income after they
have reduced for capital gains which is 100 mm so same process so once we
reduced his taxable income by his net capital gains this is the number we use
one hundred and two thousand because it's lower than the 140 I hope you guys
are following me I know this is a lot of information really quickly but I'm gonna
try to get through this information as quickly as possible for you guys
remember you're gonna have this whole document for free to download and you
can study all these for yourself so it just changes the formula a little bit as
you can see and his deduction in this example is gonna be come out to be
twenty thousand four hundred bucks
an example 3 we're looking at chipper chippers business is now a specified
service trader business if you remember from part one it matters
big-time whether or not you're in a specified service trade or business
now remember an example one and two chippers income was below the qbi
deduction phase-out of one hundred and fifty seven thousand five hundred so it
didn't matter if he was in a specified service trader business or not because
his income based on his filing status was below one hundred and fifty seven
thousand five hundred dollars so like i said it doesn't matter what kind of
business he's in as long as he's below that threshold he's going to get the
full twenty percent deduction are likely to get the full twenty percent deduction
but now an example three that we're gonna look at where we he isn't a
specified service business chipper operates as a sole proprietor he files a
Schedule C on his tax return chipper works as a doctor so this is doctor
chipper to your service he's doctor dreamy he renders Medical Services and
his business is considered a specified service business now this is chippers
only business okay this is his only business that he operates his filing
status is still single but notice here his net qualified business income is
$225,000 and chippers taxable income before the qbi deduction now in this
example is two hundred thousand dollars now chipper has no capital gains in this
example zero so we don't have to worry about that so as you guys know the
common rule is it's the lesser of your twenty percent the the twenty percent
deduction is the lesser of your qualified business income or your
taxable income reduce for any taxable gains
well once again we're gonna be looking at this two hundred thousand because
it's less than the two hundred twenty-five thousand dollars of his net
qpi alright what you're gonna notice ladies and gentlemen what I want you to
notice as you look at these examples based on your filing status based on
your overall income and based on the type of business you're in it's going to
change how you do the calculation and that's what makes this deduction so
complex there are some similarities but there's also some differences so you
have to really pay attention to this and you're going to see that as you study
each example because really the purpose of this video is to
really help you understand how this all works and that's why I'm putting this
together for you guys because there's so many questions out there about this
deduction guys it took me months to learn this stuff
months and I'm a and I do this stuff for a living so imagine how complicated this
can be for somebody who doesn't do accounting our taxes for living it's
pretty challenging so let's go ahead and go to the the example now let's go let's
go for it here because chipper its income this see this two hundred
thousand it's above the one hundred and fifty seven thousand dollar range as
where the phase-in starts to to come into play so chippers income is two of
two hundred thousand dollars as taxable income is a is how much above the
hundred fifty seven thousand five hundred its forty two thousand five
hundred dollars above the the phase-out range okay so his deduction begins to
phase out once he's over one hundred and fifty seven thousand five hundred and so
you're gonna see here and hope you guys can to read that can read this okay says
chippers taxable income is forty two thousand five hundred dollars above the
phase-out range so as you guys can see that's the calculation we just did so so
chippers deduction phase-out percentage is eighty five percent because forty two
so I should I should mention here that the deduction for a single filer for
somebody who filed single it maxes out at two hundred and seven thousand five
hundred that's where this deduction would completely phase-out if you're in
a specified service trade or business which in this example chipper is so
between two hundred and seven thousand five hundred and one hundred fifty seven
thousand five hundred that's a fifty thousand dollar range and so once
chippers income exceeds this to 207 five hundred he gets no deduction whatsoever
and this is why it's important to go back and understand all those rules in
the other video because if you don't understand it it's not these
calculations like I said it won't make sense as you guys can see here's how the
calculation plays out so chippers deduction and rewatch this video as much
as you need to guys and study this worksheet chippers deduction phase-out
percentage is eighty five percent because forty two thousand five hundred
divided by fifty thousand which is the spread of the phase-out range for a
single filer is eighty five percent okay so we know his phase-out range is eighty
five percent so let's let's see how this is calculated
so it's thus the limited $1.99 a deduction is calculated as false so we
know his qualified business income is $225,000 right because that number 225
thousand is coming from right here we know his phase-out percentage is
eighty five percent because that number is coming from right here so the amount
of the phase-out is one hundred ninety one thousand two hundred fifty dollars
so what this does is it's going to reduce his qualified business income and
it's going to change how we look at things now so the qualified business
income of two hundred twenty-five thousand dollars now we subtract out the
phase-out amount of one hundred ninety one
two fifty so now it's basically revising his qpi deduction hurry his KPI income
its revising his qbi income at this point so now he's got a new qualified
business income of thirty three thousand seven fifty so now his qualified
business income deduction is calculated on this amount so initially when we
looked at this we saw that his taxable income was lower than his qbi but once
we revised it because his income is above these phase-out limitations his
qbi after it's reduced for the amount of the phase-out his revised Cuba is now
lowered the thirty three thousand seven fifty is now obviously lower than his
taxable business Inc are his taxable income up here so that's why we now have
to use this amount to calculate the twenty percent deduction on that so now
we take twenty percent times a thirty three thousand seven fifty and chippers
one ninety nine a deduction is now six thousand seven hundred fifty dollars I
know that's a lot to follow but it's gonna serve you well to study these in
your own time it's gonna make a lot more sense it's really hard to get this
across in a video very clearly without you guys really knowing the rules and
really studying these calculations for yourself in each tab I've included some
of the limitations that we were talking about like the income phase-out
limitations so you can see I'm not pulling these numbers out of thin air if
they're just coming from the rigs and the rules
now let's move on to example 5 this is the final example I want to share with
you in this video and what we're gonna do in example 5 is when a taxpayer and
when their income is over the qbi deduction phase-out ranges and when
they're in a non specified service trader business so they're not in a
service business and they're their income is well over the deduction
phase-out ranges so what does that all mean well when when their income is over
the qpi deduction phase-out it basically means if we scroll down here it means
their income is above these amounts but now normally if like I like I said
recently if they're in an SS b or a specified service business their
deduction would be they would have no deduction at all at this point they're
out of luck no chance of giving any toward adduction but because they're not
in a specified service trader business because in this example chipper is once
again he's a manufacturer chipper operates as a sole proprietor and he
files a Schedule C on his tax return he manufacture his birdcages once again his
bird cages are not considered a specified service trader business and
this is shippers only business so let's come back down here because shippers not
in a specified service business he gets to apply some other rules that might
allow him to take the deduction so now we're looking at this box right here
where it says w-2 and on adjusted basis limitations phase in so let me zoom in
on this a little bit so you guys can see that so there's two tests here first if
the limit is the greater of 50% of w-2 wages or 25% of w-2 wages plus two and a
half percent of an adjusted basis so take a good look at that guys pause the
video and now let's go to the top and work our way down to see how this is all
calculated and this will make a lot more sense once you see it in calculation
form so let's go up to the top and read the facts for this example okay okay so
once again shippers filings has a single chippers net qualified business income
is two hundred ninety thousand dollars and chipper in this example pays wages
of eighty thousand dollars chipper owns one hundred and ninety thousand dollars
in assets within his business chippers tax a link
before the qbi deduction is 260 thousand dollars and chipper has to keep it a
little bit more simple to keep us a little bit more simple we're gonna say
that he has no capital gains zero all right let's see how this deduction plays
out first we need to do some calculations to cut to figure out what
the limitations are on on chippers deduction because chippers income is so
high because his income is well above the phase-out range so first we're going
to do the 50% of w-2 wages test so we know chipper paid eighty thousand
dollars in wages right because that number is coming from right here so we
do 50% of w-2 wages so that's $40,000 right for teeth out our 80 thousand
times 50% is 40,000 now we're gonna need to look at test 2 test 2 is 25% of w-2
wages which is 80,000 times 25 percent plus 2 and a half percent of an adjusted
basis in assets so in this example remember chipper had a one hundred
ninety thousand dollars in assets within his business okay so you would take we
take two and a half percent times that which gives him four thousand seven
hundred and fifty dollars so we add up the 25 percent of wages paid and the two
and a half percent of on adjusted basis in assets and we get 24,000 750 now
remember we get to take the greater of the greater up for this first part
because down here the rule stay the limit is the greater of of these of
whichever one of these is higher so obviously if you pass math class $40,000
is higher so that's the number we're gonna work with in this example so let's
let's go down to this is step one now let's come down to step two and let's
figure this out now what we need to do is figure out what the max qpi deduction
would be so we know that chippers qualified business income is two hundred
ninety thousand and remember that two hundred ninety thousand comes from up
here right there so we take 20% of that so 20% of two
hundred ninety thousand is fifty eight thousand dollars folks so now we're
going to take the lesser of the max qualified business income
action or the 50% of wages and we're taking the 50% of wages here because
this was the greater of the numbers in step 1 if this number if this test had
come out higher we would be using that example down here instead but because of
the $40,000 and if if 50% and wages higher we're gonna use that amount so
just want to make that clear and with the lesser of the $58,000 or the $40,000
which is less $40,000 is less than 58 thousand dollars clearly all right
that's step 2 now we're gonna go into the step 3 and we're gonna start to
finalize this calculation so that was step 2 now let's go on to step 3 and
we're getting close to being done with this calculation now what we need to do
is we need to calculate the 20% max deduction based on the tax base on
chippers tax link um well chippers taxable income we know is 260,000 and
that number is coming from right here because that's what was given that's
what I gave you guys as the example that's chipper taxable income so 20% of
$260,000 is $52,000 right so we know that $40,000 is less than 52,000 dollars
right our maximum qbi deduction in this example in example number 5 is $40,000
so what this means is that chipper could reduce his taxable income with this
qualified business income deduction by $40,000 and he's going to report that on
line 9 all right guys well I just walked through a couple examples with you guys
the most complex example in this whole worksheet is actually example number 4
and you guys can see you can walk through this example in your own time
you can pause the video you can download the this spreadsheet for yourself for
free like I said I'll link it up down below for you guys and this will go
through step by step by step there's actually this is a five-step calculation
in this part so that's why I don't want to cover it all on camera or on screen
because it's this gonna take too much time but you guys can study that for
yourself so we've looked at an easy one we've looked at where the when chipper
is as income is below the phase-out ranges we've looked at an example where
chippers income is in example number two where it's below the phase-out ranges
and Annie has a little Apple Gaines have how that changed
changes the calculation a little bit in example two or I mean I'm sorry an
example three we looked at when shippers income is between the income phase-out
ranges and he's in a specified service trade or business an example five we
covered when chipper is not in a specified service trader business and
his income is over the phase-out of mounts and how these other deductions
now these other tests have to come into play when when we take the we have to
come look at the fifty percent of wages or twenty five percent of wages plus two
and a half two and a half percent of on adjusted basis hopefully this stuff
makes sense guys remember feel free to ask questions down below I've done my
best to explain this but like I said truly the best way to learn it now is to
go back and study this stuff for yourself in your own time
look at the Microsoft Word handout that I created for you for free read the
rules and then look at these examples and give yourself some time and it's
gonna start to make more sense now in the handout or in this spreadsheet I've
included links for you guys if you want to learn more about this one and at nine
eighty deduction there's a couple links that where I've pulled this information
together it doesn't show up here yet but I'm going to have a link to the video
for part one and I'm gonna have a link for the word document handout that you
for Dropbox that you can find in here as well so just make sure you check out
this link section of the worksheet there's a lot of good information
let's just talk real briefly about having multiple businesses okay so if
you're a business owner and this deduction is meant for business owners
as you guys know if you watch the part number one if you have multiple
businesses you would have to do this calculation for every business you own
okay so for every business you own you would do this calculation but if you
there's also aggregation rules so for some people for some tax payers they
have multiple businesses and their income is really high so their income is
like above let's say they're married filing joint and their income is like
six hundred thousand dollars so there are ways to aggregate there's an
election that you can make on next year's tax return are the 2018 tax
return that will allow you to aggregate the activities of all your qualified
business income activities and that may or may not give you a higher
qpi deduction if you aggregate now if you a great to my understanding once you
elect the aggregate you have to keep doing that going forward and you can't
change it and this deduction guys is gonna be in play for the next ten you're
on I won't say next ten years but it's supposed to be in play until 2000 until
the end of 2025 and at that point or beyond that starting in 2026 I don't
know if they're gonna scratch all this or not I have no idea all right guys
I've probably tucked your ear off at this point so now it's time to hear from
you guys so in the comments section down below let me know your thoughts about
this new deduction let me know if you have any questions I'm sure you're gonna
have questions to run by me if I if I can answer on my will as far as I know
these calculation examples I put in this video are correct there's always a
chance I can make mistakes so you know do not consider this to be legal or tax
advice none of this in this video is to be taken as legal or tax advice always
do your own homework do your own research consult with an accountant in
the area you live you know if you want to learn more about the stuff this video
was made to help you guys understand how the deduction works and I think one of
the best ways to learn how it works is to actually work through the calculation
examples so then you can look at your own business and say okay well this is
activity I've got going on these are the wages I pay this is where I expect my
taxable income to be for the year to help you determine if your calculations
gonna be as easy as an example 1 or 2 or if your calculations gonna be really
complex like a number like an example is 3 & 4 or even 5 all right everyone well
I'm gonna end the video right here let me know what you guys think about all
this stuff I look forward to reading your comments if you liked the video
make sure you leave me a like it really helps me out share this information with
a friend especially if you have a friend who owns a business this new tax
reduction is going to save a lot of people a lot of money in taxes on this
channel we help people like yourself become fiscally fit so to join our
community and not miss any of our future uploads and make sure you just hit that
red subscribe button down below thank you so much everybody for hanging out
with me here on YouTube it's always a pleasure it's always honor I hope you
guys have a great week hope y'all chill and I'll see you in the
next episode and take this information and use it to live your life on cage bye
guys peace
you
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