QBI Deduction: What is it?
The Qualified Business Income (QBI) Deduction allows eligible business owners to deduct up to 20% of their qualified business income on their taxes. This deduction applies to owners of pass-through entities, such as sole proprietorships, partnerships, and S corporations. The deduction is available for most businesses, but there are income and business type limitations. Learn more from the IRS.
How to Claim the QBI Deduction:
- Determine Eligibility: Ensure your business qualifies as a pass-through entity (sole proprietorship, partnership, or S corporation).
- Calculate QBI: Sum your qualified business income, which includes the net profit from your business.
- Apply the Deduction: Deduct 20% of your qualified business income, subject to limitations.
- File with the IRS: Use the appropriate tax forms, like Form 1040 and Form 8995, to claim the deduction.
QBI Deduction Income Thresholds:
Filing Status |
Income Limit for Full Deduction |
Phase-Out Range |
Single Filers |
$182,100 |
$182,100 – $232,100 |
Married Filing Jointly |
$364,200 |
$364,200 – $414,200 |
Frequently Asked Questions
1. Who qualifies for the QBI deduction?
Owners of pass-through entities like sole proprietorships, partnerships, and S corporations may qualify, provided their taxable income is within the IRS-set limits.
2. How is the Qualified business income deduction calculated?
Generally, the deduction is 20% of your qualified business income. However, for higher-income taxpayers, additional factors like W-2 wages paid by the business and the value of its assets can affect the deduction.
3. Can I claim the QBI deduction for a rental property?
Rental income may qualify if the rental activities are conducted as a trade or business.
4. Is the Qualified business income deduction available for high-income earners?
Yes, but it may be limited if your taxable income exceeds $182,100 (single) or $364,200 (married).
5. What is considered qualified business income (QBI)?
Qualified business income includes the net income from a business, excluding capital gains, dividends, and interest.
6. Can you take the QBI deduction if you are self-employed?
Yes, self-employed individuals can qualify if their income meets the IRS limits.
Contact us today to learn how you can maximize your QBI deduction and optimize your tax savings.