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What is individual depreciation?

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February 2, 2024

The document discusses the depreciation of passenger automobiles for business purposes. If you elect not to claim any special depreciation allowance for the vehicle or if the vehicle is not qualified property, the maximum deduction is $3,060 or $3,160. A depreciation worksheet is provided to calculate the depreciation deduction using percentage tables.

The document also mentions bonus depreciation, which typically applies to property with a class life of 20 years or less, qualified leasehold improvements, and certain types of plants. For vehicles placed in service during 2015, the depreciation limits are $3,160 and $3,460 for passenger cars and light trucks, respectively. The first-year luxury limit was previously increased by $8,000 when bonus depreciation was claimed. However, under new law, bonus depreciation applicable to luxury vehicles will be phased out through 2019. The luxury auto limits will be increased by these bonus depreciation amounts: $8,000 for 2015 through 2017, $6,400 for 2018, and $4,800 for 2019. For 2015, the first-year depreciation cap is $11,160 for most passenger cars and light trucks.

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March 1, 2024

The California Worker Retention payment is generally treated as a wage expense by the employer. This means it is deductible as a business expense for the employer. However, it is also subject to payroll taxes, including Social Security and Medicare taxes. The employer is responsible for withholding these taxes from the employee's pay, as well as paying their own portion of these taxes. The payment is also subject to federal and state income tax withholding. The employer should report the payment on the employee's W-2 form at the end of the year.

March 1, 2024

Yes, you're correct. If you have multiple businesses and one or more of them have a loss, while others have a profit, you don't automatically net the QBI deduction to zero. Instead, you net the income and losses from all your businesses to calculate your total QBI.

In your case, if you have a Schedule C business with a net income of $290, and a K-1 with a net loss (from Box 20, Code Z) of -$8,507 and -$1,004, you would combine these amounts to calculate your total QBI.

If the total QBI is negative (i.e., the losses are greater than the income), then you would carry forward the loss to the next year, and your QBI deduction for the current year would be zero. However, if the total QBI is positive (i.e., the income is greater than the losses), then you would calculate the QBI deduction based on the positive amount.

In either case, you would report the income, losses, and any carryover loss on Form 8995 or Form 8995-A. The specific lines and columns you use would depend on the details of your situation.

Again, it's a good idea to consult with a tax professional if you're unsure about how to report this information on your tax return. The QBI deduction can be complex, especially when you have multiple businesses and/or carryover losses.

March 1, 2024

Form 8995 is used to calculate the Qualified Business Income (QBI) deduction. The QBI deduction is based on the net income from a qualified trade or business, so if the business has a net loss, it could result in a negative QBI.

In the case of the K-1 you referenced earlier, the negative amounts in Box 20, Code Z (Ordinary business income (loss) -8,507 and Rental income (loss) -1,004) would indeed flow to Form 8995. These amounts would be entered on Line 2 of Form 8995 in the columns for each respective business.

However, if the total QBI from all businesses is negative (i.e., a net loss), the QBI component of the deduction is zero for the current year. The loss is then carried forward to the next year as a negative QBI for the same trade or business. This is reported on Form 8995, Line 7.

So, while you might enter negative numbers on Form 8995 when calculating the QBI for each business, the final QBI deduction that you enter on your Form 1040 cannot be negative. If the calculation results in a negative number, you simply enter zero for the QBI deduction on your tax return and carry the loss forward to the next year.

As always, it's a good idea to consult with a tax professional if you're unsure about how to report this information on your tax return.