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Qualified Business Income Deduction – What Is It? How Does It Work?

The qualified business income deduction benefits pass-through businesses by allowing owners to deduct up to 20% of their QBI, based on Section 199A of the Tax Cuts and Jobs Act 2017.

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Eligible for owners

Eligible for owners of partnerships, sole proprietorships, S Corporations, estates, and trusts, the deduction reduces taxable income by 20% of QBI, plus other qualified dividends and partnership income.

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The deduction

The deduction is accessible regardless of itemized deductions or the standard deduction technique, available from 2017 to 2025, benefiting self-employed individuals and small business owners.

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Pass-through businesses

Pass-through businesses like LLCs, partnerships, sole proprietorships, and S Corporations qualify, with limitations on deduction based on taxable income thresholds.

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Qualifying for the deduction

Qualifying for the deduction involves proving active involvement in the business, legitimate profit-making activities, and accurate reporting of QBI and deductions on IRS Form 1040

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