The qualified business income deduction (QBI) is a tax deduction that allows eligible taxpayers to deduct up to 20 percent of their qualified business income (QBI), plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. In general, total taxable income in 2021 must be under $164,900 for single filers or $329,800 for joint filers to qualify. In 2022, the limits rise to $170,050 for single filers and $340,100 for joint filers.
The QBI deduction is available to:
• sole proprietors
• S corporations, and
Eligible businesses must be a trade or business where the principal asset is the reputation or skill of one or more employees. This includes professions such as accounting, law, health, consulting and financial services. The eligible business must also generate at least 50% of its revenue from providing goods or services to unrelated customers in the ordinary course of business (revenue from related parties does not count).
The QBI deduction is a significant tax break for small-business owners who have been waiting for years for Congress to lower their tax burden. The 20% deduction will be limited to 50% of W-2 wages paid by the business and 25% of W-2 wages paid by all businesses owned by an individual taxpayer (the limit applies at the individual level).
The deduction can be used to offset the taxpayer’s net business income or net adjusted business income. Net business income is the gross receipts of the business minus allowable expenses. Net adjusted business income is net business income plus or minus specified items such as depreciation and amortization.
Our team at 4sight Advisors LLC is equipped to help you navigate the nuances of the tax code and
maximize your benefits. We would like to give you a free 45-minute consultation to discuss how you
can earn more using our proven strategies.