1120S Loss -> QBI

[ILLMAS]

Just want to double check with everyone, if a business has a loss, then there is no need to fill-in the QBI portion on the K-1?  Business had a loss of $10K and the owner had $6K in wages.

Thanks

 

[Lee B]

Still have to fill it in, because QBL is carried forward and reduces future QBI at the 1040 level.

[ILLMAS]

You are correct, I just reviewed my notes, I was thinking it only applied to rentals.

Thanks

[Randall]

Do losses only begin counting this year?  If K-1 shows income, would prior year loss apply toward QBI this year?  I'm assuming at the 1040 level, if individual has PAL suspended loss, then that would offset current year income or basis limitation loss from prior year, that too would offset current year income for QBI purposes.

[EricF]

Carryforward losses from years before 2017 do not reduce QBI.  That goes for NOL, PAL suspended losses, and basis suspended losses.

[ILLMAS]

I went back to my notes to review wages:

• Wages for limitation purposes includes all wages, including shareholder wages.
• Wages not allocable to QBI are excluded from the calculation.
• PEO wages are included as wages for the business.
• Wages cannot count twice in two taxable years or for two trades or business.

So my K-1 should look like this?

Box 17

V -10,000

W 46,000 (Owners $6K + $40K employees)

I am concern, someone might pickup on wages and calculate QBI and not take $10K loss into consideration.

 

[EricF]

QBI is computed separately for each activity, so for your activity with negative QBI, no QBI deduction will be computed.  The negative QBI carries forward to reduce positive QBI in subsequent year, but wages and unadjusted basis numbers from 2018 do not carry forward.

If there is positive QBI from other activities in the same year, the negative QBI will be used against that positive QBI and not carried forward.

The wages from your activity can't be used in computing the QBI deduction of another activity unless the activity qualifies to be aggregated with other activities and the aggregation election is made.

[Terry D EA]

EricF hit this straight on. Also, as cbslee said it too.

[Randall]

16 hours ago, EricF said:

Carryforward losses from years before 2017 do not reduce QBI.  That goes for NOL, PAL suspended losses, and basis suspended losses.

Eric, did you mean before 2018?  I have been looking for something on this and can't see anything specific other than the current year loss carried forward to next year.  However, I did see something on suspended losses that they retain their character and are treated as 'incurred' by the corp in the succeeding tax year with respect to that shareholder.  That would lead me to believe that prior years suspended losses would be treated as incurred in the current year and offset any current year income from that activity and therefore reduce QBI for the current income.  Do you have any quick reference regarding losses from prior years not counting against the current year income?

[EricF]

Sorry, I did mean before 2018.  The reference is Regs. Sec. 1.199A-3(b)(iv).

[Randall]

2 hours ago, EricF said:

Sorry, I did mean before 2018.  The reference is Regs. Sec. 1.199A-3(b)(iv).

Thanks Eric.  This seems weird.  I have a client with suspended losses.  The S corp is turning a corner and will have profit in 2018.  The individual has no basis in his share and his past losses have been suspended.  For 2018 he will have a profit on his K-1.  If I understand this correctly,  he will not show this income as taxable (because his suspended losses will offset) but he can then use this 2018 income to calculate a QBI deduction (assuming all other things allow so).  Is this correct?

[EricF]

Yes.  If the deduction of formerly suspended losses reduces taxable income enough, 20% of taxable income may be less than 20% of QBI, limiting the benefit in that way.