How to File 2022 Form 8995 for the QBI Deduction
Learn about the simplified computation for the 2022 QBI deduction. This guide details using Form 8995 for eligible taxpayers to properly claim this tax benefit.
Form 8995, Qualified Business Income Deduction Simplified Computation, is an IRS tax form used by eligible individuals, trusts, and estates to calculate their qualified business income (QBI) deduction. Also known as the Section 199A deduction, this allows owners of certain businesses to deduct up to 20% of their qualified business income. The form provides a simplified method for calculating this tax benefit.
Determining if You Need to File Form 8995
To file Form 8995, you must have qualified business income (QBI), qualified real estate investment trust (REIT) dividends, or qualified publicly traded partnership (PTP) income. Qualified business income stems from a qualified trade or business, which can include a sole proprietorship, partnership, or S corporation. The main consideration is whether you can use the simplified Form 8995 or if you must use the more detailed Form 8995-A.
The choice between the forms depends on your taxable income before the QBI deduction. For the 2024 tax year, you can use Form 8995 if your taxable income is at or below $191,950 for single, married filing separately, or head of household filers. The threshold is $383,900 for those married filing jointly. If your income exceeds these amounts, you must file Form 8995-A.
Another factor is the nature of your business. You must also use Form 8995-A if your income is from a Specified Service Trade or Business (SSTB) and your taxable income is over the thresholds. An SSTB is a business involving services in fields like health, law, accounting, consulting, athletics, or financial services. Taxpayers with income from an agricultural or horticultural cooperative must also use Form 8995-A.
Information Required to Complete Form 8995
To complete Form 8995, you must gather specific financial information. The primary figure is your Qualified Business Income (QBI), which is the net amount of qualified items of income, gain, deduction, and loss from your qualified trade or business. This information is found on the forms you use to report business activity, including:
- Schedule C for sole proprietors
- Schedule E for rental income
- Schedule F for farming
- A Schedule K-1 for partners in a partnership or shareholders in an S corporation
You will also need to determine your taxable income before the QBI deduction. This figure is calculated on your Form 1040 and is needed to apply the final limitation to your deduction. It is your adjusted gross income minus either the standard deduction or your itemized deductions.
The form also requires any qualified REIT dividends, which are reported in Box 5 of Form 1099-DIV. Similarly, you must identify any qualified PTP income. This income is from a publicly traded partnership and is reported on Schedule K-1 (Form 1065) in Box 20 with code Z.
Calculating the Deduction on Form 8995
The calculation on Form 8995 is a multi-step process. You begin on Line 1 by listing the name and taxpayer identification number (TIN) for each of your qualified trades or businesses, along with the respective amount of QBI or loss.
Next, you total the QBI or loss amounts on Line 2. If you have a qualified business net loss from a prior year to carry forward, you enter that on Line 3. Line 4 combines these amounts to arrive at your total QBI. You will then enter your qualified REIT dividends and PTP income on Line 6 and combine this with your total QBI on Line 10.
The next step is calculating the potential deduction. On Line 11, you multiply the total from Line 10 by 20% (0.20). You must also calculate 20% of your taxable income before the QBI deduction, less any net capital gain, which is entered on Line 14. Your final QBI deduction, reported on Line 15, is the smaller of the amounts on Line 11 or Line 14.
Filing Form 8995 with Your Tax Return
Once you have completed Form 8995, it must be filed with your annual tax return. You will attach the completed form to your Form 1040, U.S. Individual Income Tax Return.
The final QBI deduction amount that you calculated on Line 15 is carried over to your Form 1040 and reported on the appropriate line for deductions. This final step ensures that your taxable income is correctly reduced by the deduction.