Understanding Your QBI at Risk and Net Operating Loss on TurboTax

When it comes to filing your taxes, understanding the intricacies of your tax return can be quite challenging. One of the key components that many individuals and businesses need to comprehend is the Qualified Business Income (QBI) at Risk and Net Operating Loss (NOL). In this article, we will delve into what these terms mean, how they are calculated, and how they can impact your TurboTax return.

What is QBI at Risk?

QBI at Risk refers to the portion of your business income that is subject to the 20% deduction under Section 199A of the Tax Cuts and Jobs Act (TCJA). This deduction is available to individuals and pass-through entities, such as partnerships, S corporations, and sole proprietorships.

Calculating QBI at Risk involves determining the income generated from your business and subtracting certain deductions, such as depreciation, amortization, and Section 179 deductions. The result is the QBI at Risk, which is then used to calculate the 20% deduction.

How to Calculate QBI at Risk

Here’s a step-by-step guide to calculating your QBI at Risk:

1. Identify the income generated from your business. This includes all revenue, minus cost of goods sold, operating expenses, and other deductions.
2. Subtract depreciation, amortization, and Section 179 deductions from the income.
3. The result is your QBI at Risk.

What is Net Operating Loss (NOL)?

Net Operating Loss (NOL) occurs when your business’s allowable deductions exceed its taxable income. This can happen due to various factors, such as a loss in a particular year or high depreciation expenses.

Under the TCJA, NOLs can be carried forward for up to 20 years, allowing businesses to offset future income with their losses. However, there are certain limitations on how NOLs can be used.

Calculating Net Operating Loss

Calculating NOL is relatively straightforward:

1. Calculate your business’s taxable income by subtracting deductions from your income.
2. If your deductions exceed your taxable income, you have an NOL.
3. Carry the NOL forward for up to 20 years to offset future income.

Impact on TurboTax

Understanding QBI at Risk and NOL is crucial when filing your taxes using TurboTax. Here’s how these terms can impact your return:

• QBI at Risk: TurboTax will automatically calculate your QBI at Risk based on the information you provide about your business income and deductions. This will help you determine the amount of the 20% deduction you’re eligible for.
• Net Operating Loss: If you have an NOL, TurboTax will guide you through the process of carrying it forward and applying it to future income. This can help reduce your tax liability in future years.

Example

Let’s say you own a small business and have the following information for the 2020 tax year:

In this example, your QBI at Risk is $82,000. TurboTax will use this amount to calculate your 20