Unlock eSignature Legitimacy for Assignment of Partnership Interest in the UAE

How to eSign a document: eSignature legitimacy for Assignment of Partnership Interest in UAE

okay for this video I want to go over the form 89.95 for the qbi deduction and this is going to be the simplified computation so we're using the 89.95 and not the 89.95-a so specifically I want to go over PTP and read income so qualifyptp Reit dividends and publicly traded partnership income can qualify for the qbi deduction so in our example here we're going to look at kind of the interaction between PTP income and then what happens if you also have other qualified business income that doesn't fall within those categories so I've got the sample return in front of us here which we'll go into in more detail I do have a sample schedule K1 so this is kind of a K1 from a PTP entity and we're going to see how these items get reported on the return and where we get those qbi amounts and then I do have one sample or not a sample once slide here covering some background on this 199a deduction and specifically the interplay between the regular kind of qualified business income components that we typically see and then what do we do when we have read or PTP components so I'm not going to go into too much detail on qbi itself I'm going to assume that if you're watching this you're probably already kind of familiar with the qbi concept but the qbi computation the deduction is is reported on the 89.95 or the 89.95a and this generally grants you up to a 20 deduction on your qualified business income so it lowers your your overall taxable income now the deduction comprises two separate components and that's where we're going to see on the 89.95 is that these are separately stated and separately calculated before they're combined so the first qbi component is kind of the one that we're more familiar with right so this is a 20 deduction of qbi from domestic businesses so this is flow through partnership income S Corp or if you operate a sole proprietorship now the qbi component in this bucket here does have some limitations that might apply so if your taxable income is over certain thresholds there's certain phase-outs that you have to be mindful of is it a an sstb so a specified service Trader business or not and then do you have other kind of issues with W-2 wage limitations or you buy of qualified property used in that Trader business right so that's the one that more often is what we see now the second uh element here is the Reit and PTP component so read dividends and PTP flow through income can also qualify for this qbi deduction so these are separately computed from the qbi component up here but you get the same deduction right so the deduction is going to be 20 of the qualified Reit dividend amounts and qualified PTP income and then the other nice thing is there are no W2 or you buy amounts that that could apply here to limit the deduction amount now we still have to be mindful of the combined overall 20 percent uh taxable income limitation and we'll look at that when we get to the form as well but unlike this first one up here when we talk about income flowing through from these uh two pieces the read and PTP amounts we don't have to worry about these W2 or you buy kind of issues so what are the interactions with PTP specifically in some of these other qualified businesses in the in this top component here well again the PTP earnings are separately stated and you do not net these amounts with other qbi components now what goes into that PTP number and so when we look at the 89.95 what we're referring to is this item here on line six right so if we're going to have an income amount from PTP what amount is reported here on line six so that amount under the regulations includes really two things right so the first one is it's the amount of income that's being allocated to you on the K1 that is qualified publicly traded partnership income right so it's eligible for this qbi deduction and then the second piece is you can add any gain that would be recognized by the taxpayer upon the sale of those PTP units now that that includes game only if it gives rise to ordinary income right so under Section 751 and so what we mean by that is if you're if you're trading your PTP units uh when you sell them you really have kind of two two types of gain right you could have capital gain long term or short term but then you could have an ordinary income component under Section 751 and it's that piece of the game that is potentially includable in that line six item for PTP income so let's look at our fact pattern here and then we'll go back to the the form uh and then we'll look at the K1 as well and see kind of how all this is pulling together so our taxpayer here John Q taxpayer he operates a Consulting business through a single member LLC and so he reports all that income and expense on a schedule C and his business has a net loss for the year 490 dollars but it is qualified business income and it is a specified service Trader business so so it's still eligible for this deduction and then what we're also going to see is his income is below those thresholds so again he's eligible for this simple computation uh using the 89.95 form now in addition to that John also purchases a PTP investment for roughly 29 000 and he sells at the same year so he holds the PTP investment for a couple months sells it uh recognizes some gain on the transaction so he gets his K1 for the PTP at the end of the year which shows his allocation of the income and expenses and that's the piece right here so he's got his K1 from the PTP entity for just a couple of months that he owned it and so we can see here it's also being marked final right because he sold all of his investment and he's got some malicable items here right so ordinary business income and lost some interest and dividends and then we can see here his ending Capital account has been zeroed out because again he sold all of his investment During the period all right so they okay so now on the sale of the the PTP he recognized short-term capital gain of 1889 and the PTP schedule K1 shows an allocation of 62 dollars in ordinary losses and then an allocation of 751 gain from the sale of the partnership for 361 dollars so when John Nets these two together 62 in loss 361 an ordinary gain on the disposition he's got a qualified PTP income of 299 dollars and then just to highlight here again remember he's not including the capital gain of 1889 right because this is not 751 game it's just short-term capital gain on the sale of the partnership interest so let's look at the K1 again in more detail here so he's got all of these items here that he's entered on his return and then if we scroll down to the supplemental information so that's always in box 20z where we have this 199 a information on the PTP income so in this sample K1 we can see down here in 20z that the ordinary income or loss that is qualified PTP income is minus 62. and then there's the 361 dollars ordinary income on the sale of the units and that's the 751 gain that John had on the sale of the partnership interest so when we look at John's tax return if we go to schedule e here where he's entered the PTP information the amount of non-passive loss that was allowed that's the 62 dollars in ordinary income and and again that's that's being treated as non-passive loss allowed because he sold all the PTP units right so um you're you know when you dispose of a PTP investment all of those losses if they were suspended under the passive activity rules they can all they get freed up right so theirs is 62 dollars on the 47.97 he has recorded that that 361 dollars in ordinary game right so he's done everything right there and then on the 89.95 you can see he's reported that net amount 299 dollars there now the schedule C if we just touch on that really quickly so he completed his schedule C as you know you normally would if you're a sole proprietor so he's got his income and his expenses there's his tentative profit or loss he is treating it and it does does meet the definition of a qualified business so a Consulting business is a qualified business but it's also an sstb so if you did make too much money above that threshold then you might have some issues with the phase outs but in this case he doesn't um okay so then if we go back to the 89.95 here there's his line one entry for the 490 dollars in losses he's got his PTP income there and so if we look more closely in this area we can see how these again these are being separately stated and separately computed initially right so the 490 dollars from this qualified business this qbi component is not netted against this 299 right it's separately stated because he has an overall net loss he doesn't have a qualified business income component for this piece for this year it's carried forward so the 490 is entered as a carry forward down here on line 16 right and then we have on line six the 299 dollars 299 in PTP income on line nine we have multiplied it by 20 percent so sixty dollars is that initial PTP component that's going to be the deduction right the 60 deduction and then as I stated on the slide right the even though these two are added up so on line 10 right we add lines five and nine so it's totaled here uh which is fine but it's still subject to this overall taxable income limitation of twenty percent of your taxable income before that that qbi deduction so uh the income limitation is fourteen Thousand Seven fifty so well above the sixty dollars so he clearly is going to get this sixty dollar deduction and then again the 490 is carried forward so if you want to see where does this ultimately end up well it is on page one of the 1040. so the qbi deduction is reported on line 13 of page one of your 1040 so we can see their qualified business income deduction from either the 89.95 or 89.95a whichever one you are required to use okay so uh that covers it for this video I hope this was helpful uh if you have some questions about 199a deductions or PTP sales or anything like that please feel free to leave me a comment below uh happy to answer any questions I can and I will put some other links Below in the description for some of these other issues uh like lost netting or recording the sale of PTP interests uh hopefully those can help as well all right so again that covers it thanks so much for watching and I look forward to seeing you again on the next video thank you