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Mason (single) is a 50 percent shareholder in Angels Corporation (an S Corporation). Mason receives a $190,500 salary working full time for Angels Corporation. Angels Corporation reported $442,000 of taxable business income for the year (2023). Before considering his business income allocation from Angels and the self-employment tax deduction (if any), Mason's adjusted gross income is $190,500 (all salary from Angels Corporation). Mason claims $71,000 in itemized deductions. Answer the following questions for Mason. Assuming the business income allocated to Mason is income from a specified service trade or business, what is Mason's deduction for qualified business income? Ignore the wage-based limitation when computing the deduction.



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peerjahan99

Answer:

To calculate Mason's deduction for qualified business income (QBI), we first determine his share of Angels Corporation's taxable income. Since Mason is a 50 percent shareholder, his share of the taxable business income is 50% of $442,000, which equals $221,000.

Now, Mason's adjusted gross income (AGI) is his salary from Angels Corporation, which is $190,500. This means his QBI deduction cannot exceed 20% of his AGI. So, 20% of $190,500 equals $38,100.

However, Mason's share of taxable income from Angels Corporation exceeds his QBI deduction based on AGI. Therefore, Mason's deduction for qualified business income would be limited to the lesser of:

1. 20% of his share of taxable business income from Angels Corporation, which is $221,000 * 20% = $44,200.

2. 20% of his adjusted gross income, which is $38,100.

Since $38,100 is less than $44,200, Mason's deduction for qualified business income would be $38,100.

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