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De minimis rule 1—If your gross receipts from a trade or business are $25 million or less and less than 10% of the gross receipts are from the performance of services in a specified service field, then your trade or business is not considered specified service trade or business, and thus may generate income eligible for the QBI deduction for the tax year. De minimis rule 2—If your gross receipts from a trade or business are more than $25 mil- lion and less than 5% of the gross receipts are from the performance of services, then your trade or business is not considered a specified service trade or business, and thus may gener- ate income eligible for the QBI deduction for the tax year. Service or peoperty provided to an SSTB—If your trade or business provides serv- ices or property to an SSTB and there is 50% or more common ownership of the trades or busi- nesses, that portion of the services or property provided to the SSTB is treated as a separate SSTB. Determining your qualified business in- come. Your QBI includes items of income, gain, deduction, and loss from any trades or businesses (or aggregated trade or business) that are effectively connected with the conduct of a trade or business within the United State. This includes income from partnerships (other than PTPs), S corporations, sole proprietor- ships, and certain trusts that are included or al- lowed in determining your taxable income for the year. It also includes other deductions at- tributable to the trade or business including, but not limited to, deductible tax on self-employ- ment income, self-employed health insurance, and contributions to qualified retirement plans. Note. Your QBI doesn’t include any losses or deductions disallowed under the basis, at-risk, passive loss, or section 461(l) limita- tions, as they aren’t included or allowed in de- termining your taxable income for the year. In- stead, these losses and deductions are taken into account in the tax year they are included in determining your taxable income. Loss and de- duction items that were generated prior to 2018, that are included in income during the year, are not included in QBI. QBI doesn’t include any of the following. • Items that aren’t properly includible in in- come. • Investment items such as capital gains or losses, or dividends. • Interest income, other than interest income properly allocable to a trade or business (interest income attributable to an invest- ment of working capital, reserves, or simi- lar accounts is not properly allocable to a trade or business). • W-2 income. See Services performed as an employee excluded from qualified trades or businesses., earlier. • Income that isn’t effectively connected with the conduct of business within the United States. (For more information, go to IRS.gov and type in the key word “effec- tively connected income.”) • Commodities transaction or foreign cur- rency gains or losses described in section 954(c)(1)(C) or (D). • Income, loss, or deductions from notional principal contracts under section 954(c)(1) (F). • Annuities (unless received in connection with the trade or business). • Amounts received as reasonable compen- sation from an S corporation. • Amounts received as guaranteed pay- ments. • Payments received by a partner for serv- ices under section 707(a). • Qualified REIT dividends. • Qualified PTP income. W-2 wages. W-2 wages generally include amounts paid to employees for the perform- ance of services, plus elective deferrals (for ex- ample, contributions to 401(k) plans), deferred compensation, and Roth IRA contributions. Amounts paid to statutory employees when the “Statutory Employee” box in box 13 is checked are not W-2 wages. If you conduct more than one trade or busi- ness, the W-2 wages must be allocated among the various trades or businesses (or aggregated trades or businesses) to the business that gen- erated the wage. In addition, only the W-2 wa- ges properly allocable to QBI are includible. W-2 wages are properly allocable to QBI if the associated wage expense is taken into account in computing QBI. Before allocating W-2 wages among various trades or businesses (or aggregated trades or businesses) and/or allocating W-2 wages to QBI, first determine the total amount of W-2 wa- ges. There are three methods to figure your W-2 wages. • Unmodified box method. • Modified box 1 method. • Tracking wages method. Unmodified box method. Under the un- modified box method, W-2 wages are the smaller of: 1. The sum of the amounts reported in box 1 of the relevant Forms W-2, or 2. The sum of the amounts reported in box 5 of the relevant Forms W-2. Modified box 1 method. Under the modi- fied box 1 method, W-2 wages are figured as follows. 1. Add the amounts reported in box 1 of the relevant Forms W-2. 2. Add all the amounts described below that have been included in box 1 of the rele- vant Forms W-2. a. Amounts not considered wages for federal income tax withholding purpo- ses. b. Supplemental unemployment com- pensation benefits within the meaning of Rev. Rul. 90-72. c. Sick pay or annuity payments. 3. Subtract (2) from (1). 4. Add together any amounts reported in box 12 of the relevant Forms W-2 that are properly coded D, E, F, G, or S. 5. Add (3) and (4). Tracking wages method. Under the tracking wages method, W-2 wages are figured as follows. 1. Add the amounts that are wages for fed- eral income tax withholding purposes and that are also reported in box 1 of the rele- vant Forms W-2. 2. Add together any amounts reported in box 12 of the relevant Forms W-2 that are properly coded D, E, F, G, or S. 3. Add (1) and (2). To figure your W-2 wages using one of the three methods above, generally use the sum of the amounts you properly report for each em- ployee on Form W-2, Wage and Tax Statement, for the calendar year ending with or within your tax year. However, don't use any amounts re- ported on a Form W-2 filed with the Social Se- curity Administration more than 60 days after its due date (including extensions). Short tax year. If you have a short tax year, you generally will use the sum of the amounts you properly report for each employee on Form W-2 for the calendar year ending with or within that short tax year. However, if you have a short tax year that doesn't include a calendar year ending within that short tax year, then wages you properly report on Form W-2 that you paid during the short tax year are treated as W-2 wa- ges for that short tax year. Acquisition or disposition of a trade or business. If you acquired or disposed of a trade or business that causes you and another employer to pay W-2 wages to employees of the acquired or disposed of trade or business during the calendar year, then the W-2 wages for the calendar year of the acquisition or dispo- sition are allocated between each employer based on the period that the employees of the acquired or disposed of trade or business were employed by each employer. If you have a short tax year that doesn’t include a calendar year ending within your short tax year, see Short tax year, earlier. Non-duplication rule. Amounts that are trea- ted as W-2 wages for a tax year under any method can't be treated as W-2 wages for any other tax year. Also, an amount can't be treated as W-2 wages by more than one taxpayer. Unadjusted basis immediately after acquis- ition. For purposes of determining your UBIA for all qualified property, the unadjusted basis immediately after acquisition means the basis on the placed-in-service date. Qualified prop- erty includes all tangible property subject to de- preciation under section 167 that is held and used by the trade or business (or aggregated trade or business) during and at the close of the tax year, for which the depreciable period hasn’t ended. The depreciable period ends on the later of 10 years after the property is placed-in-service or the last day of the full year for the applicable recovery period under section 168. Additional first-year depreciation, such as bonus depreciation, doesn’t affect the applica- ble recovery period. Improvements to property are treated as a separate qualified property. Chapter 12 Qualified Business Income Deduction Page 51