The Qualified Business Income (QBI) deduction is one of the most valuable tax breaks available to small business owners. Created under the Tax Cuts and Jobs Act (TCJA) of 2017, this deduction allows eligible business owners to potentially deduct up to 20% of their qualified business income from their taxable income. If you’re self-employed, run a sole proprietorship, or own a pass-through entity, understanding the QBI deduction can significantly reduce your tax bill, and help you keep more of your hard-earned income.
How Does the Deduction Work?
The QBI deduction is available to owners of pass-through entities, including:
- Sole proprietorships
- Partnerships
- S corporations
- Some LLCs
Instead of the business paying corporate income taxes, profits “pass through” to the owner’s personal tax return. The QBI deduction lets these owners deduct up to 20% of that income before calculating their personal tax liability.
The deduction is taken below the line, meaning it reduces taxable income but does not affect adjusted gross income (AGI). It also does not require itemizing deductions – you can still take the standard deduction and qualify for QBI.
Who Qualifies for the QBI Deduction?
Most small business owners with pass-through income qualify, but there are limits based on income and business type.
For 2024, full QBI deductions are generally available to:
- Single filers with taxable income under $191,950
- Joint filers with taxable income under $383,900
If your income exceeds these thresholds, the deduction may be reduced or eliminated depending on the type of business and wages paid.
What Businesses Do Not Qualify?
Certain “specified service trades or businesses” (SSTBs) face stricter limitations once income exceeds the threshold. These include:
- Law
- Accounting
- Consulting
- Financial services
- Health-related fields
For example, if you’re a high-earning CPA or doctor, your deduction may phase out completely.
However, if your business is product-based, in construction, real estate, or manufacturing, you’re more likely to fully qualify, even at higher income levels.
At JBS Corp, we specialize in helping business owners structure their operations and compensation in tax-smart ways. If your current setup limits your QBI eligibility, we can help you pivot strategically. Contact us today!
How to Calculate QBI Deduction
Here’s a simplified breakdown of how to calculate your QBI deduction:
- Identify your qualified business income. This includes net business income, minus deductions.
- Apply the 20% rule. Multiply QBI by 20%.
- Check your taxable income. If you’re under the threshold, you can likely deduct the full 20%. If you’re over, wage and asset limitations apply.
Example:
If your QBI is $100,000, your deduction is $20,000 – assuming you qualify without limitations.
This is just a basic overview. For a deeper dive, we offer strategic planning services to calculate your exact deduction and optimize your tax position year-round.
When Does the QBI Deduction Expire?
As of now, the QBI deduction is set to expire after tax year 2025, unless extended by Congress. That means the 2025 tax return (filed in 2026) could be the last time business owners benefit from this powerful deduction.
With uncertainty ahead, now’s the time to plan proactively.
Need Help Navigating the QBI Deduction?
JBS Corp can help you make sense of QBI and more. Whether you need tax planning, bookkeeping, or ongoing advisory, we’re here to make the complex feel simple, so you can focus on what you do best: running your business.
