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QBI Distributions Or Qualified Dividends, Which Is Better?

Published Sun, 27 Jan 2019 23:42:52 -0500 on Seeking Alpha

Introduction The Tax Cuts and Jobs Act (TCJA) of 2017 allows many tax payers to exclude 20% of their Qualified Business Income (QBI) from their taxable income. This results in a lower effective tax rate on QBI. Since QBI includes several types of pass-through income (e.g. sole proprietorship, partnership, S-Corporations, REIT, and MLP), many investors and business owners are going to get a decent additional tax break for 2018 and beyond. My last article, published on Seeking Alpha, covered the QBI deduction in more detail. This article takes a more detailed look at the effective tax rates provided by the 20% QBI deduction, including a comparison with tax rates on qualified dividends.
Effective Tax Rates For QBI The TCJA (section 199A) allows taxpayers with qualifying pass-through business income (i.e., QBI) to deduct 20% of their QBI from their taxable income before the calculation of federal taxes owed. This effectively lowers the tax rate on QBI. The calculation below provides a conceptual summary.
For this example, let us assume the taxpayer's 2019 taxable income before QBI deduction is $120,000 and $10,000 of that is QBI.
- QBI deduction = 20% of $10,000 = $2000
- Final Taxable Income = $120,000 - $2000 = $118,000
- Tax calculation
10% of $9700 = $970
+ 12% of ($39,475 - $9,700) = $3,573
+ 22% of ($84,200 - $39,475) = $9,839.50
+ 24% of ($118,000 - $84,200) = $8,112
Total = $22,494.50
- Tax on $120,000 (without QBI deduction) =... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
KNOT OFFSHORE PARTNERS LP 18.75   9.6 1.96 2.08 11.43
GEO GROUP 17.65   13.6 1.30 1.92 11.00
WESTERN GAS PARTNERS 23.02   14.5 1.59 2.47 10.69
SABRA HEALTHCARE REIT 21.55   195.9 0.11 1.80 8.62
STARWOOD PROPERTY TRUST 23.48   17.8 1.32 1.92 8.32
IRON MOUNTAIN 31.49   26.2 1.20 2.44 7.98
OMEGA HEALTHCARE INVESTORS 39.22   30.9 1.27 2.64 6.91
ENTERPRISE PRODUCTS 28.42   12.3 2.31 1.76 6.30
AT&T 34.97   14.7 2.38 2.04 5.98
PHYSICIANS REALTY TRUST 17.62   62.9 0.28 0.92 5.38
HANNON ARMSTRONG 27.17   31.6 0.86 1.34 5.01
VENTAS 73.20   53.0 1.38 3.17 4.44
REALTY INCOME 72.81   55.6 1.31 2.72 3.79

KNOT OFFSHORE PARTNERS LP - KNOP
KNOT OFFSHORE PARTNERS LP - KNOP  


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