There's an income phaseout for the QBI deduction. For 2024, if you file jointly and have taxable income over $364,200, the deduction starts getting reduced. With your combined income at $220k, you should still get the full 20% though. Did you have business losses or other adjustments? Sometimes the "qualified" part of business income isn't the same as your total business income.

We definitely don't make enough to hit the phaseout threshold, so that's not it. There weren't any business losses - the carpentry business was profitable all year. I'm wondering if TurboTax is calculating the QBI based on the net profit after expenses rather than gross income? Maybe that's why it's lower than I expected. I'll double check our Schedule C to see what's being reported as the actual qualified business income amount. Thanks for pointing out the difference between total business income and qualified business income!

Yes, the QBI deduction absolutely applies to single-member LLCs taxed as sole proprietorships! Your business structure is perfect for this deduction. With $62,000 in profit reported on Schedule C, you should generally qualify for a QBI deduction of around $12,400 (20% of your profit). This deduction reduces your taxable income, not your tax directly. So if you're in the 22% tax bracket, this could save you approximately $2,728 in federal taxes. You can verify this by looking at your Form 1040, page 2, line 13. That's where the QBI deduction amount should appear on your tax return.

Thanks for sharing your experience! Neither of us has any tax debts or child support, so it sounds like joint is probably the way to go for us. Did you use any particular tax software that was helpful for comparing the two options?

We used H&R Block's online software which made it pretty easy to compare. We entered all our info for a joint return first, noted the refund amount, then created a new return and selected married filing separately to see the difference. TaxAct also has a good comparison feature that's a bit more straightforward - it can show you both scenarios side by side after you enter all your information once.

That's actually a common misconception. The married filing separately brackets aren't the same as single brackets - they're exactly half of the married filing jointly brackets. So there's usually no tax bracket advantage to filing separately if both spouses have similar incomes. The only exception is if one spouse has significant itemized deductions that would be limited by the other spouse's income. But with the higher standard deduction now, that's rare for most people.

Thanks for sharing your experience! Did you respond to everything by mail or did you have the option to upload documents electronically? I'm curious about how the process actually works.

They initially contacted me by mail with a request for the documentation, but I was able to create an account on their examination portal and upload all my documents electronically. It was actually pretty straightforward - I scanned everything, created a single PDF, and uploaded it with a cover letter explaining each item. They did have questions about two of my documents which required a follow-up phone call, but overall the process was less painful than I expected. Just make sure you respond within their deadlines and keep copies of absolutely everything you send them. The digital option definitely sped things up compared to mailing everything.

I had the exact opposite experience. IRS increased my NIIT by $1200 and when I got audited, they found they had made the mistake. Took forever to get resolved tho. Like 8 months of back and forth.

The key difference is that OP was a 50% owner for the ENTIRE year in question. It's not about current ownership - it's about who had ownership during the tax period being filed. The business operations during that year were under both partners, so both should have input on how those operations are reported to the IRS.

Wouldn't filing an 8082 potentially trigger an audit though? I've always heard this form raises red flags with the IRS.

Filing Form 8082 doesn't automatically trigger an audit, but it does increase the chances of your return getting a closer look. However, that increased scrutiny is often limited to the specific items you've reported inconsistently, not your entire return. The important thing is to have solid documentation supporting your position. If you're right on the merits and can back up your treatment with records and tax law, an audit shouldn't be a major concern. Many tax professionals consider it better to file an 8082 than to report income or deductions incorrectly just to match an improper K-1. The penalty for failing to file an 8082 when required can be substantial ($50 per inconsistency), plus any additional penalties if the inconsistency results in understating your tax.

Yes! This happened to me too. They coded mine as a "7" (I'm over 59.5) even though it was definitely a rollover. My tax guy said the important thing is to mark it as a rollover when entering it into tax software. He said the IRS reconciles this with the 5498 form your receiving institution files showing the money went into another IRA.

Thanks for confirming! That makes me feel better. I didn't realize the receiving institution files a Form 5498 that the IRS can match to my rollover. That makes sense that there would be a paper trail on both ends. I've been keeping all my documentation just in case, but it's good to know there's an additional safeguard in the system.

Oof, that's a really good point. I had the same issue with a 401k rollover (not an IRA). Had to scramble to find extra cash to make up the withheld amount. Then had to wait for the tax refund the following year to get that withheld money back.