Form 8995 / 8995-A – Qualified Business Income Deduction

If you are unfamiliar with the Qualified Business Income Deduction (QBID), click here for more information.

Forms 8995 and 8995-A are used to calculate the QBID. Form 8995 is the simplified form and is used if all of the following are true:

• the individual has qualified business income (QBI), qualified REIT dividends, or qualified PTP income or loss;
• taxable income before QBID is less than or equal to certain thresholds:
  • Single, HOH, Qualifying Widow(er): $160,700 (2018: $157,500)
  • MFS, married nonresident alien: $160,725 (2018: $157,500)
  • MFJ: $321,400 (2018: $315,000)
• the individual isn’t a patron in a specified agricultural or horticultural cooperative.

Keystone Tax Solutions Pro automatically calculates QBID using the information provided elsewhere in the return, producing either Form 8995 or 8995-A as needed. Thus the accuracy of the calculation depends upon the accuracy of the information it is receiving principally from Schedules C, E, F, and K-1.

In an unusual situation you may need to manually adjust an amount that is part of the calculation, e.g., if all or a portion of the income is from a trade or business not effectively connected to the US. If the adjustment is related to Schedule C, E, or F, make the adjustment in the particular business’s Schedule C, E, or F menu item Qualified Business Income Deduction Amounts.

Otherwise, to access the Form 8995 menu itself, from the Main Menu of the tax return (Form 1040) select:

• Tax Computation
• Qualified Business Income Deduction (8995)

Qualifies for QBI Deduction – If this return does not qualify for QBID, answer NO. This is the only way to prevent QBID from being calculated for a return but it will rarely need to be done. For example, you may need to prevent QBID from calculating if the only source of QBI is foreign income on a Schedule K-1 also mistakenly indicated on the K-1 as Section 199A income. (In this situation, ideally a corrected Schedule K-1 will be obtained, but failing that the preparer should adjust the amount of Section 199A income on the K-1, then include Form 8082 in the return to explain the adjustment.)

Taxable Income – To adjust the calculated taxable income before QBID, enter a + or – adjustment amount.

Capital Gains – To adjust the calculated capital gains, enter an adjustment amount.

REIT Dividends – To adjust the REIT dividends amount pulling from Schedule(s) K-1, enter a + or – adjustment amount.

Pass-through businesses – For informational purposes, this menu item lists all the Schedules C, E, F, and K-1 with income or loss included in the QBI calculation. If a number needs changing, it will be changed in the schedule rather than here.

Note that the amounts in the Income and Deductions columns will be adjusted proportionally by several items if they are present in the return, including but not limited to:

• deductible part of self-employment tax;
• self-employment health insurance deduction;
• self-employed SEP, SIMPLE, and qualified plan deductions;
• unreimbursed partnership expenses (included in Schedule K-1 Box 14)
• interest expense related to the acquisition of a partnership interest or S corp ownership.

Aggregation of Business Operations – For the purposes of the QBID calculation, each trade or business is treated separately, however aggregating the businesses is allowable in certain situations and may be advantageous to the taxpayer, e.g., if one business has a higher payroll than the others. The taxpayer may elect to aggregate businesses for the purpose of calculating QBID if all of the following are true:

1. All the trades or businesses use the same tax year end;
2. Each trade or business is at least 50% owned by the taxpayer, individually or in a group, directly or indirectly, for a majority of the tax year, including the last day of the tax year;
3. None of the trades or businesses are a Specified Service Trade or Business (SSTB); and
4. The trades or businesses meet at least two of three factors:
   1. Their products, property, or services are the same or are usually offered together;
   2. They share facilities or share business resources such as accounting, HR, IT, legal, manufacturing, purchasing, and personnel.
   3. They coordinate with or rely on one or more of the businesses in the aggregated group.

The election to aggregate is an important decision that is made by the taxpayer, rather than the preparer, taking into account all the facts and circumstances in the present as well as potentially in the future. Additionally, the election to aggregate is non-revocable and must be continued in future years unless doing so is no longer justifiable due to a significant change in facts and circumstances.

To aggregate businesses, in the Aggregation of Business Operations menu, select:

• New
• Description – Enter a brief descriptive name for the aggregation.
• Explanation – Enter an explanation for why they are aggregating (pursuant to IRC Sec 1.199A-4). There is a maximum of about 156 characters across two lines.
• Changed from Prior Year – Explain any changes to the aggregation from the previous year due to, e.g., a trade or business being formed, acquired, disposed of, or ended.
• Allocate Business to Aggregation – In the list, check the box next to each business being included in the aggregation.

If Form 8995-A is being filed with the return, the aggregation information will be on a separate Schedule B for that form. If Form 8995 is being filed with the return, the aggregation information will be on a separate attachment to Form 8995.

Prior Year Qualified Business Loss Carryforward – Enter any losses or deductions disallowed for use in calculating taxable income in a prior year that can be included in the current year. Depending on the form being produced, this amount will carry to Form 8995 Line 3 or to Form 8995-A Line 2, allocated proportionately across all the businesses. (Whether or not you include a minus sign, the amount will transfer to the form as a minus.)

Prior Year REIT/PTP Loss Carryforward – As above, enter any REIT or PTP losses or deductions disallowed in a prior year that can be included in the current year. Depending on the form being produced, this amount will carry to Form 8995 Line 7 or to Form 8995-A Line 29. (Whether or not you include a minus sign, the amount will transfer to the form as a minus.)

Note: This is a guide on entering information on Form 8995. It is not intended as tax advice. The preparer is encouraged to read the relevant IRS publications and form instructions under Additional Information below.

Additional Information:

IRS: Qualified Business Income Deduction

IRS: Final Regulations

IRS: Publication 535, Business Expenses

Notice 2019-07: Section 199A Trade or Business Safe Harbor: Rental Real Estate (applicable to the 2018 tax year only)