Federal Income Tax 2 – HW W6

The central concept learned during the week was qualified business income distribution.
Qualified business income refers to the number of eligible items, the gains, deductions, and
losses for businesses that are qualified and are within the United States. The Qualified business
deductions are determined at the shareholder’s level. Each of the shareholders has the
responsibility of taking into account the gains, losses, and deductions, and they will be treated as
having W-2 wages. The deductible amount for each business should be equivalent to 20% of the
Qualified business income. The amount is limited to greater than 50% of W-2 wages or 25% of
W-2 fees in addition to 2.5% of the unadjusted basis. Also, if the taxable income of the taxpayer
is less than the threshold amount, then any other specific business of the taxpayer will be treated
as a qualified business, but only the relevant percentages will apply to the qualified income or
deduction. The appropriate rate is a 100% reduction by the portion that is equivalent to the ratio of
the taxable income.
My experience with the week’s concept was engaging as I was in a position to understand
the lessons properly. Class questions on S-Corporations in 3.05 and 3.06 gave an adequate
elaboration on some of the areas that an S-Corporation is not expected to take deductions. I had
some challenges in understanding the basis of a shareholder in the stock of an S-Corporation.
However, form the questions, I was able to resonate with the issues and understand how the
capital of an S-Corporation can increase by the shareholder’s pro-rate share. But I would like a
clarification on the matter, “why the S-Corporations are not permitted to make deductions from
the charitable contributions yet it is calculating the ordinary business income?”