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In 2020, Henry Jones works as a freelance driver, finding customers using various platforms like Uber and Grubhub
In 2020, Henry Jones works as a freelance driver, finding customers using various platforms like Uber and Grubhub. He is single and has no other sources of income. In 2020, Henry's qualified business income from driving is $125,200. Assume Henry takes the standard deduction of $12,400.
Click here to access the 2020 individual tax rate schedule to use for this problem.
Assume the QBI amount is net of the self-employment tax deduction.
Compute Henry's QBI deduction and his tax liability for 2020.
QBI deduction: $fill in the blank 1
Tax liability (round to the nearest dollar): $fill in the blank 2
Expert Solution
Computation of Henry's QBI Deduction and His Tax Liability for 2020:
QBI Deduction = (Net Income - Standard deduction) * 20%
= ( $125,200 - $12,400) * 20%
QBI Deduction = $22,560
Computation of Tax Liability:
Taxable Income = Net Income - Standard Deduction - QBI deduction
= $125,200 - $12,400 - $22,560
Taxable Income = $90,240
Income between $ 0 to $ 9875 = 10% i.e $ 987.5
Income between $ 9875 to $ 40,125 = 12% i.e 12% of ($40,125 - $ 9875) = $ 3630
Income between $ 40,125 to $85,525 = 22% of ($85,525 - $ 40,125) = 22% of $45,400 = $9,988
Income between $ 85,525 to $90,240 = 24% of ($90,240 -$ 85,525) = 24% of $4,715 = $1,131.60
Hence, Henry's tax liability = $ 987.5 + $ 3630 + $ 9,988 + $1,131.60 = $15,737.10
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