Are you leaving money on the table at tax time? If you’re not taking advantage of the Qualified Business Income (QBI) deduction, the answer might be yes. This powerful tax benefit could save eligible business owners up to 20% on their qualified business income—yet many entrepreneurs overlook it.
What Is the QBI Deduction?
The Qualified Business Income deduction, introduced by the Tax Cuts and Jobs Act of 2017, allows eligible business owners to deduct up to 20% of their qualified business income from sole proprietorships, partnerships, S corporations, and some trusts and estates. This means if your qualified business income is $100,000, you could potentially deduct up to $20,000.
Who Qualifies for the QBI Deduction?
You may qualify if you:
- Own a pass-through business entity
- Have taxable income below $170,050 (single) or $340,100 (married filing jointly) in 2023
- Operate a qualified trade or business
Higher-income business owners may still qualify, but additional limitations apply.
How Does the QBI Deduction Work?
The calculation involves several steps:
- Calculate your qualified business income
- Determine your taxable income threshold
- Apply any applicable limitations
- Calculate the 20% deduction
For example, if your qualified business income is $80,000:
- Basic QBI deduction: $80,000 × 20% = $16,000
- This reduces your taxable income from $80,000 to $64,000
Key Limitations to Know
Some important restrictions apply:
- Specified service trades or businesses (SSTBs) face income limitations
- W-2 wage limitations may apply for higher-income taxpayers
- Real estate investment trusts (REITs) and publicly traded partnerships have special rules
Maximizing Your QBI Deduction
To optimize your deduction:
- Keep detailed records of business income and expenses
- Consider timing of income and deductions
- Consult with a tax professional about qualification and limitations
- Review business structure to ensure optimal tax treatment
Take Action Now
Don’t miss out on this valuable deduction. Review your business structure and income with a qualified tax professional to ensure you’re maximizing your QBI deduction benefits. The savings could be substantial—up to 20% of your qualified business income.
Disclaimer: This article is for informational purposes only and should not be considered tax advice. Consult with a qualified tax professional for guidance specific to your situation.
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