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As a taxpayer, it is important to be familiar with the various forms and documents that you are required to file with the Internal Revenue Service (IRS) when preparing your tax return. One such form is Form 8995, which is used to calculate the Qualified Business Income (QBI) deduction for taxpayers who have income from a pass-through entity or a sole proprietorship. In this article, we will provide a comprehensive guide to help you understand Form 8995 and how to use it to reduce your taxable income.

What is Form 8995?

IRS Form 8995 is used to calculate the QBI deduction, which was introduced as part of the Tax Cuts and Jobs Act (TCJA) of 2017. The QBI deduction allows eligible taxpayers to deduct up to 20% of their qualified business income from their taxable income. This deduction is available to individuals, estates, and trusts who have income from a pass-through entity or a sole proprietorship.

The QBI deduction is subject to various limitations and exclusions, which are detailed on Form 8995. The purpose of this form is to help taxpayers calculate their QBI deduction accurately and ensure that they are taking advantage of all available deductions.

How to fill out Form 8995?

Form 8995 consists of two parts: Part I and Part II. Part I is used to calculate the QBI deduction for taxpayers with income below certain thresholds, while Part II is used to calculate the deduction for taxpayers with income above those thresholds.

Part I of Form 8995

Taxpayers whose taxable income is less than or equal to the threshold amount ($329,800 for married taxpayers filing jointly, $164,900 for single filers) can use Part I to calculate their QBI deduction.

To fill out Part I, you will need to provide the following information:

Total QBI, which is the net amount of qualified business income, gain, deduction, and loss from all qualified businesses

Total taxable income

The amount of any qualified REIT dividends and qualified publicly traded partnership income

The amount of any deductions taken for self-employment tax, self-employed health insurance, and contributions to qualified retirement plans

Any other applicable deductions

Once you have entered this information, the 8995 form will automatically calculate your QBI deduction and the amount that can be deducted from your taxable income.

Part II of Form 8995

Taxpayers whose taxable income is above the threshold amount must use Part II to calculate their QBI deduction. Part II is more complex than Part I, as it requires additional information to determine the QBI deduction.

To fill out Part II, you will need to provide the following information:

Total QBI, which is the net amount of qualified business income, gain, deduction, and loss from all qualified businesses

Total taxable income

The amount of any qualified REIT dividends and qualified publicly traded partnership income

The amount of any deductions taken for self-employment tax, self-employed health insurance, and contributions to qualified retirement plans

The amount of any W-2 wages paid by the qualified business

The unadjusted basis immediately after acquisition (UBIA) of qualified property held by the qualified business

Once you have entered this information, the form will automatically calculate your QBI deduction and the amount that can be deducted from your taxable income.

Benefits of using Form 8995

Form 8995 IRS is a tax form used by taxpayers to calculate their Qualified Business Income (QBI) deduction. This deduction was introduced as part of the Tax Cuts and Jobs Act of 2017, and it allows eligible taxpayers to deduct up to 20% of their QBI from their taxable income.

One of the primary benefits of using Form 8995 is that it simplifies the calculation of the QBI deduction. The form provides clear instructions for calculating the deduction, and it also helps taxpayers identify the types of income that qualify for the deduction.

Another benefit of using Form 8995 is that it can help taxpayers maximize their tax savings. By accurately calculating their QBI deduction, taxpayers can reduce their taxable income, which can result in a lower overall tax bill.

In conclusion

Form 8995 is an essential tool for taxpayers who want to take advantage of the QBI deduction. By using this form, taxpayers can simplify the calculation of their deduction and maximize their tax savings. If you have eligible business income, it's worth considering using Form 8995 when preparing your tax return.

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