The qualified business income deduction (QBI) is a tax deduction that allows eligible businesses to deduct up to 20% of their qualified business income from their taxable income. The deduction was created by the Tax Cuts and Jobs Act of 2017 (TCJA) and is available to factamedia sole proprietorships, partnerships, S corporations, and trusts and estates that meet certain requirements.
To be eligible for the QBI deduction, a business must meet all of the following requirements:
- It must be a trade or business that is conducted in the United States.
- It must be operated for profit.
- The taxpayer must be the owner of the business.
- The business must not be a specified service trade or business (SSTB).
SSTBs are businesses that are involved in certain types of professional services, such as law, accounting, and consulting. The full list of SSTBs is available on the IRS website.
The amount of the QBI deduction is equal to 20% of the taxpayer’s qualified business income, but it is subject to a number of limitations. The deduction is phased out for taxpayers with modified adjusted gross income (AGI) above certain thresholds. The phase-out begins at $325,000 for married couples filing jointly and $162,500 for all other filers.
The QBI deduction can be a significant tax savings for eligible businesses. However, it is important to note that the deduction is complex and there are a number of requirements that must be met. Taxpayers should consult with a tax professional to determine if they are eligible for the deduction and to calculate the amount of the deduction.
Here are some of the benefits of the QBI deduction:
- It can provide a significant tax savings for eligible businesses.
- It can help to level the playing field between businesses that are structured as pass-through entities and businesses that are structured as C corporations.
- It can encourage investment in small businesses.
Here are some of the limitations of the QBI deduction:
- It is subject to a number of restrictions, including the phase-out for taxpayers with high modified AGI.
- It is not available to all businesses, such as SSTBs.
- It is a complex deduction and taxpayers should consult with a tax professional to determine if they are eligible and to calculate the amount of the deduction.
Overall, the QBI deduction is a valuable tax break for eligible businesses. However, it is important to understand the requirements and limitations of the deduction before claiming it.