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QBI Deduction Formula:
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The QBI (Qualified Business Income) deduction allows eligible taxpayers to deduct up to 20% of their qualified business income from pass-through entities. This deduction was introduced as part of the Tax Cuts and Jobs Act of 2017 to provide tax relief to small business owners and self-employed individuals.
The calculator uses the QBI deduction formula:
Where:
Explanation: The deduction is calculated as 20% of the qualified business income from eligible pass-through entities including sole proprietorships, partnerships, S corporations, and some LLCs.
Details: The QBI deduction can significantly reduce taxable income for eligible business owners, providing substantial tax savings and supporting small business growth and entrepreneurship.
Tips: Enter your qualified business income in USD. The income must be from eligible business activities and meet the requirements for QBI deduction eligibility.
Q1: Who is eligible for the QBI deduction?
A: Most owners of pass-through businesses including sole proprietors, partners in partnerships, shareholders in S corporations, and some trust and estate beneficiaries.
Q2: Are there income limitations?
A: Yes, the deduction may be limited for taxpayers with taxable income above certain thresholds ($170,050 for single filers and $340,100 for joint filers in 2023).
Q3: What types of income qualify?
A: Income from qualified trades or businesses, excluding specified service trades or businesses (SSTBs) for higher-income taxpayers.
Q4: How does the deduction phase out?
A: For taxpayers above the threshold amounts, the deduction phases out over a range and may be limited by W-2 wages and business property.
Q5: Can employees claim the QBI deduction?
A: No, the QBI deduction is specifically for business income from pass-through entities, not wages earned as an employee.