Qualified business income (QBI) is a tax deduction available to certain taxpayers who own pass-through businesses. A pass-through business is a business that is not taxed at https://eduvenue.com/ the entity level, but rather, the income and losses are passed through to the owners’ individual tax returns.
The QBI deduction was created as part of the Tax Cuts and Jobs Act of 2017. The deduction is designed to help small businesses and entrepreneurs by reducing their overall tax liability.
The QBI deduction is equal to 20% of the taxpayer’s QBI, but there are some limitations. The deduction is phased out for taxpayers with modified adjusted gross income (AGI) above certain thresholds. For single filers, the phase-out begins at $160,725 of AGI and is fully phased out at $207,350 of AGI. For married couples filing jointly, the phase-out begins at $321,450 of AGI and is fully phased out at $414,700 of AGI.
The QBI deduction is also limited to the amount of qualified business income that is subject to self-employment tax. Self-employment tax is a tax that self-employed individuals pay in addition to income tax. The self-employment tax rate is 15.3%.
To qualify for the QBI deduction, the taxpayer must meet certain requirements. The taxpayer must:
- Be a U.S. citizen or resident.
- Own a pass-through business.
- Actively participate in the business.
- Not be a C corporation.
- Not be a member of a specified service trade or business.
The specified service trade or businesses include:
- Health care
- Law
- Accounting
- Financial services
- Consulting
- Real estate
If you are a taxpayer who owns a pass-through business, you may be eligible for the QBI deduction. To determine if you are eligible, you should consult with a tax professional.
Here are some of the benefits of the QBI deduction:
- It can reduce the amount of taxes you pay.
- It can help you save money on your taxes.
- It can make your tax bill more manageable.
- It can help you grow your business.
If you are considering starting a business, the QBI deduction is a factor to consider. The deduction can help you save money on your taxes and grow your business.