Qualified Business Income Deduction (QBI)

The qualified business income deduction (QBI) is a tax deduction that allows small businesses to deduct up to 20% of their business income on their tax return. Taxpayers can begin to claim this deduction on their 2018 taxes onward. However, the income must be qualified business income.

Eligibility

A business operated as a sole proprietorship, partnership, S-corporation, trust or estate are eligible. C-corporations are not eligible for this deduction. There are limitations depending on the type of business, the amount of wages (W-2) paid, and unadjusted basis of qualified property held by the business.

The IRS emphasizes that the QBI does not include the following items:

• Capital gains or losses or dividends
• Interest income not properly allocable to a trade or business
• W-2 Income
• Foreign currency gains or losses/Commodities transactions
• Certain dividends and payments
• Income, loss, or deductions from notional principal contracts
• Annuities, unless received in connection with the trade or business
• Amounts received as reasonable compensation from an S corporation
• Amounts received as guaranteed payments from a partnership
• Payments received by a partner for services other than in a capacity as a partner
• Qualified REIT dividends
• PTP income

This entry was posted on Monday, November 16th, 2020 at 9:08 pm and is filed under Deductions. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.