Who can claim the QBI deduction?
Owners of pass-through businesses such as sole proprietors, partnerships, and S corporations may qualify, subject to income limits and business-type rules.
Tax guide
What Is the QBI Deduction?
The QBI deduction lets many self-employed people and small business owners deduct up to 20 percent of their qualified business income.
QBI stands for Qualified Business Income. The deduction was created to give owners of pass-through businesses, such as sole proprietors, partnerships, and S corporations, a break similar to one given to larger corporations. It can reduce the income you are taxed on by up to 20 percent of your qualified business profit.
The deduction does not lower your self-employment tax; it only reduces your income tax. Qualified business income generally means the net profit from your business, with some types of income excluded. Higher earners face additional limits, and certain service businesses can be restricted once income passes set thresholds.
Because the rules involve income limits and business type tests, the deduction can get complicated at higher income levels. Many lower-income business owners, however, simply get the straightforward 20 percent benefit.
In short
Key points
- QBI stands for Qualified Business Income
- Lets eligible owners deduct up to 20 percent of qualified business profit
- Applies to pass-through businesses like sole proprietors and S corporations
- Reduces income tax only, not self-employment tax
- Higher earners face income limits and business-type restrictions
- Lower-income owners often get the full 20 percent more simply
FAQ
Frequently asked questions
Does the QBI deduction lower my self-employment tax?
No. It reduces your income tax only. Self-employment tax is calculated separately on your net business profit.
Why is the QBI deduction sometimes complicated?
At higher income levels, extra limits apply and certain service businesses can be restricted, so the calculation becomes more involved.
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