The qualified business income (QBI) deduction is a tax deduction that allows eligible self-employed and small-business owners to deduct up to 20% of their qualified business income on their taxes. The QBI deduction was created by the 2017 Tax Cuts and Jobs Act.
Here are some key points to understand about the QBI deduction:
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Qualified Business Income: This is the net amount of qualified items of income, gain, deduction, and loss from a qualified trade or business. It is similar to net income but excludes several types of income, such as interest, dividends, and capital gains, as well as income from businesses located outside of the U.S. .
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Eligibility: The QBI deduction is available to non-corporate taxpayers who have "pass-through income". This includes sole proprietorships, partnerships, S corporations, and limited liability companies (LLCs) . However, not all pass-through businesses are eligible for the deduction, and there are income limits and other requirements that must be met.
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Calculation: The QBI deduction is generally calculated as 20% of the taxpayers qualified business income. However, there are various limitations and phaseouts that can affect the deduction amount.
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Specified Service Trade or Business (SSTB): If a business is an SSTB, the QBI deduction may be limited or unavailable for certain taxpayers. An SSTB is a business that involves the performance of services in fields such as health, law, accounting, consulting, and athletics.
Overall, the QBI deduction can be a valuable tax break for eligible self-employed and small-business owners. However, it is important to understand the eligibility requirements and calculation methods to ensure that the deduction is being claimed correctly.
