Felicity Aldenmoor is single and runs an independent financial-advisory practice, a specified service trade or business (SSTB). For 2024 the practice produces qualified business income of 200,000 dollars and pays W-2 wages of 70,000 dollars, with no qualified property. Her taxable income before the QBI deduction is 300,000 dollars, which exceeds the 241,950 dollar top of the Section 199A phase-out range for a single filer, and she has no net capital gain. What is her Section 199A qualified business income deduction for 2024?
- A0 dollars Correct
- B40,000 dollars
- C35,000 dollars
- D14,000 dollars
Why A is correct: For a specified service trade or business with taxable income above the upper threshold, the SSTB's QBI, W-2 wages, and qualified property are all reduced to zero, leaving no qualified business income and a deduction of zero.
Why B is wrong: This is 20 percent of the 200,000 dollar qualified business income as though the practice were a qualifying business, but above the upper threshold none of an SSTB's income counts as qualified business income.
Why C is wrong: This applies the W-2 wage cap of 50 percent of 70,000 dollars as if the practice were a non-service business above the threshold, but the SSTB exclusion removes the income before any wage limitation is reached.
Why D is wrong: This treats the W-2 wage limitation as 20 percent of the 70,000 dollars of wages, but the wage limitation is never applied to an SSTB above the upper threshold because its income is excluded entirely.