TurboTax showing error on Form 8995 - anyone else having this issue?

Thanks for the detailed explanation. Quick question - how would I know if my business is classified as an SSTB? I run a consulting firm, if that matters. Also, does the W-2 wage limitation apply if I only took distributions and no actual salary from my S-corp this year?

Consulting firms are typically classified as SSTBs, which could explain why your QBI deduction is being limited. The IRS defines SSTBs as businesses where the principal asset is the reputation or skill of one or more employees or owners, including fields like consulting, health, law, accounting, and financial services. The W-2 wage limitation absolutely applies even if you only took distributions. This is actually a red flag - the IRS requires S-corp owners who provide services to take a "reasonable salary" as W-2 wages before taking distributions. If you didn't pay yourself any salary, that's a compliance issue that could trigger an audit. The QBI deduction limits are based on either 50% of W-2 wages paid or 25% of W-2 wages plus 2.5% of qualified property.

Does taxr.ai actually fix the errors in your tax software or just point them out? I'm having a similar issue but with a partnership K-1 instead of an S-corp.

I'm skeptical about these AI tax tools. How does it handle complicated situations like rental properties with QBI or multiple businesses with different SSTB classifications? My accountant says these edge cases are where most software fails.

It doesn't actually change your tax software, but it analyzes your documents and tells you exactly what's wrong and how to fix it. For your partnership K-1, it would identify if the QBI calculation is incorrect and show you the right numbers to enter manually. For complex situations with multiple businesses or rental properties, it actually excels because it can analyze all your documentation together. It's designed to catch the edge cases that standard software misses - it found three specific issues in my return involving QBI from multiple sources that my accountant had overlooked the previous year.

Wait, how does this actually work? Does it just give you a better phone number to call or something? The IRS phone system is literally the worst thing I've ever experienced.

Yeah right. There's no way this actually gets you through to the IRS faster. I've been trying for 3 weeks to talk to someone about my business tax issue. If this worked, everyone would be using it and the IRS would just shut it down.

It doesn't give you a different number - it navigates the regular IRS phone system for you and holds your place in line. When an agent picks up, it calls your phone and connects you directly. It's basically like having someone else sit on hold for you. The reason it works is because they use a system that constantly redials and navigates the phone tree until it gets through. It's completely legitimate - you're still calling the regular IRS number, just with technology handling the frustrating waiting and menu navigation part. I was skeptical too, but after wasting hours on hold myself, it was worth trying. I got through in 17 minutes when I had previously spent over 3 hours getting disconnected.

That's a great point about capital gains. I did sell some stock this year with about $45k in long-term capital gains. Could that be affecting my QBI calculation? The software doesn't seem to be explaining any limitations - it just shows an incomplete calculation.

Yes, those capital gains are almost certainly affecting your QBI deduction. Here's why: your QBI deduction is limited to the LESSER of 20% of your qualified business income OR 20% of your taxable income minus net capital gains. With $45k in capital gains, your second limitation (taxable income minus capital gains) is lower, which reduces your available QBI deduction. The software is probably calculating this correctly but failing to show you the detailed limitation steps. This is actually one of the most commonly overlooked aspects of the QBI deduction. If you expand the Form 8995 in your software, look at Line 11 where it should show this alternative limitation calculation. That's likely where the apparent "error" is happening - it's not an error but a limitation that's poorly explained in the interface.

I switched from TurboTax to H&R Block this year specifically because of Form 8995 issues. H&R Block's interface shows the calculation steps more clearly and let me see exactly why my deduction was being limited. TurboTax was just giving me a final number with no explanation.

Thanks for the suggestion. I'll try H&R Block and see if it handles my situation better. Did you need to re-enter everything or were you able to import your data from TurboTax?

This is really helpful! I'm dealing with a similar situation and think I might be in the SSTB phase-out range too. Quick question - when you say "reasonable salary," is there a specific percentage or amount the IRS expects for S-corp owners? I've been taking mostly distributions because the payroll taxes are so much lower, but now I'm worried this might be hurting my QBI deduction calculation. Also, did switching to Form 8995-A end up giving you a better or worse deduction compared to what the software was originally calculating?

@c9b46ddd6b4b This is exactly the guidance I needed! I just checked and you're right - my software generated Form 8995-A instead of the simple 8995, but it wasn't showing me the detailed calculations clearly. I'm definitely in SSTB territory with my consulting business, and my income is right at that phase-out threshold. The "incomplete" calculation I was seeing was actually the software applying the phase-out correctly but not explaining it well. Quick follow-up question - you mentioned the reasonable salary requirement. I've been taking only distributions this year to avoid payroll taxes, but now I'm realizing this might be creating problems beyond just the QBI calculation. What's considered "reasonable" for a consulting business? Should I be looking at comparable salaries in my industry, or is there a simpler rule of thumb the IRS uses?