How to Review Your K1 for the Qualified Business Income Tax Deduction

How to Review Your K1 for the Qualified Business Income Tax Deduction

To view your Schedule K-1 to determine the income that qualifies for the Qualified Business Income (QBI) tax deduction, you’ll need to follow these steps: 

1- Receive Your K-1: If you are a partner in a partnership, a shareholder in an S corporation, or a beneficiary of an estate or trust, you should receive a Schedule K-1 from the entity in which you have an ownership interest. Schedule K-1 reports your share of the entity’s income, deductions, and other items that you’ll need to report on your individual tax return. 

2- Identify the QBI-Eligible Income: Look for the relevant sections on your Schedule K-1 that report your share of income or loss from the business activities. The income that qualifies for the QBI deduction includes the following types: 

  • Ordinary business income: This is typically reported in Box 1 of the Schedule K-1. 
  • Section 1231 gains and losses: These are often found in Box 9 of the Schedule K-1. 
  • Rental real estate income if it meets certain requirements. 
  • Qualified REIT dividends (if applicable). 
  • Qualified publicly traded partnership income (if applicable). 

3- Verify Eligibility: Ensure that your share of the income reported on the Schedule K-1 meets the eligibility criteria for the QBI deduction. Eligibility can depend on factors like the type of business, your taxable income, and other limitations. 

4- Calculate the QBI Deduction: Once you have identified the QBI-eligible income, you can calculate your QBI deduction on your individual tax return using Form 8995 or Form 8995-A, depending on your filing status and income level. 

5- Complete Your Tax Return: Include the calculated QBI deduction on your individual tax return (e.g., Form 1040 or Form 1040-SR) in the appropriate section. Follow the instructions provided with the tax forms to ensure you report the deduction accurately. 

6- Keep Documentation: It’s essential to keep a copy of your Schedule K-1 and any supporting documentation in case the IRS requires verification of your QBI deduction 

7- Seek Professional Assistance: If you find the process complicated or have a substantial QBI deduction, consider consulting a tax professional or using tax preparation software to ensure accuracy and maximize your deduction. 

Remember that the rules surrounding the QBI deduction can be complex, and eligibility depends on various factors, so it’s advisable to consult with a tax professional or use tax software if you have any doubts or if your situation is particularly intricate. 

About the Author 

Brock VandenBerg is the President of TaliMar Financial and Fund Manager of TaliMar Income Fund I. Mr. VandenBerg started investing in individual trust deeds in 2008, providing capital to real estate investors taking advantage on the housing crisis. He soon brought in outside investors to share in this lucrative opportunity to earn above market returns. After funding over $375 million in short-term loans and attracting over 500 investors, Mr. VandenBerg launched TaliMar Income Fund I in 2021 to offer investors a much more efficient way to invest in individual trust deeds. Currently, TaliMar Income Fund I invests on behalf of over 220 individual investors with over $60 million in assets under management.  



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