QBI Deduction - What Is It and Who Qualifies

The Qualified Business Income (QBI) deduction is a tax break for certain business owners. It lets them deduct up to 20% of their qualified business income from their taxable income. So if your business earns $100,000, you could potentially deduct $20,000 from your taxable income. It's a way to help small business owners save on taxes. It could expire after 2025 without changes from Congress.

Calculating the Qualified Business Income (QBI) deduction involves a few steps:

1. Determine your qualified business income (QBI): This is the net income from your eligible business activities. It excludes certain types of income, like capital gains or dividends.

2. Calculate your QBI deduction: For most taxpayers, the deduction is 20% of their QBI. However, there are limitations based on your taxable income, the type of business you own, and other factors.

3. Consider any limitations: The deduction may be limited based on your taxable income, the type of business you own, and whether you have W-2 wages and qualified property.

QBI excludes:

• Capital gains or losses.

• Dividends.

• Interest income.

• Income earned outside the U.S.

• Certain wage and guaranteed payments made to partners and shareholders.

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