K1 S Corp with W2

Forum|Forum|2 years ago
April 26, 2023
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Hello,

I have a question on K1 S corporation. I just opened my S Corp with my partner on November 2022, I think I did not materially participate in this S Corp because I did not participate more than 500 hours during the tax year. It will show passive income from schedule K-1 on schedule E page 2.

It is a tea business and this is not a specified service trade or business I guess.

Schedule K1 line 17 V show statement A-QBI pass through entity reporting 3 items: Ordinary business income,W2 wages, and UBIA of qualified property.

Is this K1 ordinary business income considered passive income and not qualify for QBI?

If I qualify for QBI, should Ordinary business income be qualified for qualified business income, QBI deduction?

Please help, thank you!

Best answer by PatriciaV

According to the IRS instructions for Form 8995, if you own an interest in a pass-through entity that qualifies as a trade or business, material participation by the taxpayer isn't required for the income to qualify for the QBI deduction. Even though you are a passive investor, the K-1 income should qualify for the QBI deduction if you meet all the other requirements.