MTM and the QBID
Mark-to-Market and the Qualified Business Income Deduction
If you are here then you have read a little about the Mark-to-Market election and its various advantages and disadvantages.
Another advantage - created by the Tax Cuts and Jobs Act in 2017 - was the possibility of using the newly created Qualified Business Income Deduction when reporting your MTM trades on your tax return.
Simply put, the QBID is possibly worth a 20% deduction on your Form 1040 reflected as an addition to your Itemized or Standard Deduction. The 20% is the amount of your net gain multiplied by 20%.
This deduction is available for all entities trading as MTM Traders with the exception of C Corporations - so basically all flow-through entities, including those traders trading as a sole proprietor.
Lets see why and how this works ...
Qualified Business Income was created and described in Sec 199A of the Tax Cuts and Jobs Act ("TCJA") as:
Income from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust or estate.
There are statutorily-defined threshold amounts that may limit a taxpayer's deduction based upon:
the type of trade or business engaged in
the amount of W-2 wages paid with respect to the trad or business and/or
the unadjusted basis immediately after acquisition of qualified property held for use in the trade or business.