As a tax expert, I know that tax season can be a stressful time for many taxpayers. One of the most important tasks during tax season is filing your tax return accurately and on time. To help you navigate the complex tax code, the Internal Revenue Service (IRS) has provided various forms and instructions. One such form is IRS Form 8995-A. In this article, I will explain what IRS Form 8995-A is, who must use it, the lines to complete it, and its key features.
IRS Form 8995-A
IRS 8995-A is the tax form used to calculate the Qualified Business Income (QBI) deduction. This deduction was introduced under the Tax Cuts and Jobs Act (TCJA) of 2017 to give tax breaks to small business owners, the self-employed, and autonomous contractors. The QBI deduction allows eligible taxpayers to deduct up to 20% of their own QBI from their taxable income.
QBI is the net income, profit, expense, and loss attributable to a qualified trade or business. This deduction is available to individuals, estates, and trusts that have a qualified trade or business or are involved in a pass-through organization such as a partnership, S company, or personal holding.
Who is required to apply for IRS Form 8995-A?
Taxpayers who have qualified business earnings, qualified real estate investment trust (REIT) dividends, or qualified public partnership earnings (PTP) are required to apply IRS Form 8995-A to calculate their own QBI deduction. This form is considered indispensable for those who contain QBI from multiple sources, or who contain QBI and earnings from Company C.
The lines to complete IRS Form 8995-A
IRS Form 8995-A is a two-page form with six parts, which include several lines to complete. Here are the lines to complete on IRS Form 8995-A:
Part I: Section 199A(g) Election and Qualified Business Income (QBI)
Line 1. Enter your net QBI from all qualified trades or businesses.
Line 2. Enter your qualified REIT dividends.
Line 3. Enter your qualified PTP income.
Line 4. Add lines 1, 2, and 3.
Line 5. Enter your taxable income before the QBI deduction.
Part II: W-2 Wages and Unadjusted Basis Immediately After Acquisition (UBIA) of Qualified Property
Line 6. Enter the W-2 wages paid by the qualified trade or business.
Line 7. Enter the unadjusted basis immediately after the acquisition (UBIA) of qualified property held by the qualified trade or business.
Part III: QBI for Each Trade or Business
Line 8. Enter the QBI for each qualified trade or business.
Line 9. Enter the W-2 wages paid by each qualified trade or business.
Line 10. Enter the UBIA of qualified property held by each qualified trade or business.
Line 11. Add lines 8, 9, and 10.
Part IV: Aggregation of Trades or Businesses
Line 12. Enter the QBI for each trade or business you are aggregating.
Line 13. Enter the W-2 wages paid by each trade or business you are aggregating.
Line 14. Enter the UBIA of qualified property held by each trade or business you are aggregating.
Line 15. Add lines 12, 13, and 14.
Part V: QBI Deduction
Line 16. Enter the smaller of line 4 or 20% of line 5.
Line 17. Enter the larger of line 4 or 50% of W-2 wages.o
Line 18. Enter the larger of line 4 or 25% of W-2 wages plus 2.5% of the UBIA of qualified property.
Line 19. Enter the excess of line 16 over line 17.
Line 20. Enter the excess of line 17 over line 16.
Line 21. Enter the excess of line 18 over line 16.
Part VI: Section 199A(g) Election
Line 22. Check the box if you are making an election under Section 199A(g).
Line 23. Enter the amount of QBI attributable to the specified agricultural or horticultural cooperative.
Line 24. Enter the deduction amount attributable to the specified agricultural or horticultural cooperative.
What are the features of IRS Form 8995-A?
IRS Form 8995-A is designed to help taxpayers calculate their QBI deductions. Here are some of the leading features of this form:
1. Multiple sources of income:
IRS 8995-A allows taxpayers to consider QBI from multiple sources, covering qualifying transactions or businesses, qualifying REIT dividends, and qualifying PTP earnings. This makes it easier for multi-source taxpayers to calculate the QBI deduction.
2. Consolidation of transactions or companies:
Taxpayers with multiple transactions or businesses may well apply the aggregation criteria on Form 8995-A to combine them and calculate the QBI deduction for all of them combined. This has the potential to be beneficial to taxpayers who have small firms that are closely related or considered part of the same industry.
3. W-2 and UBIA salary:
IRS Form 8995-A requires taxpayers to report W-2 and UBIA wages of qualified property for any qualified trade or business. This information is used to calculate the minus QBI limit.
4. Limiting minus QBI:
The deductible QBI limit on IRS Form 8995-A ensures that taxpayers will not insist on deducting QBI that exceeds the allowed limit. The QBI deduction limit is calculated based on QBI, W-2 wages, and UBIA of qualified property.
5. Additional information:
IRS Form 8995-A gives taxpayers a section to provide additional information about their specialty professions or businesses. This section can be used to report every deduction or negative QBI.
Reduce your tax promises
IRS Form 8995-A is considered a required tax form for taxpayers who have qualified business earnings, qualified REIT dividends, or qualified PTP earnings. This form will be required for those who contain QBI from multiple sources, or who contain QBI and earnings from Company C. IRS 8995-A urges taxpayers to provide full disclosure of their own QBI, W-2, and UBIA wages for qualifying property. This information is used to accurately calculate the QBI deduction. Form 8995-A, with clear instructions, detailed calculations, and transaction or business aggregation, is considered the right tool for small business owners, self-employed, and independent contractors to forcefully claim a QBI deduction and reduce their tax promises.
Read more about IRS Form 1040-SR For Seniors
