Are you a self-employed individual or small business owner? If so, there’s a good chance you qualify for the qualified business income deduction (QBI). The QBI is a tax deduction that allows eligible taxpayers to deduct up to 20% of their qualified business income. In this blog post, we’ll break down what qualifies as QBI and who can take advantage of this generous tax deduction.
What Exactly Is the Qualified Business Income Deduction?
The qualified business income deduction is a federal tax deduction that was created by the Tax Cuts and Jobs Act of 2017. It allows eligible individuals to deduct up to 20% of their qualified business income from their taxable income. This means that if you are an entrepreneur, small business owner, or freelancer who has “pass-through income” — that is, business income reported on your personal tax return — then you may be able to take advantage of this generous deduction.
Who Is Eligible for the QBI Deduction?
To be eligible for the qualified business income deduction, your total taxable income must not exceed certain thresholds. In 2022, those thresholds are $170,050 if you are filing as a single taxpayer or $340,100 if you are filing jointly as married taxpayers. In 2023, those numbers increase slightly to $182,100 for single filers and $364,200 for joint filers. Additionally, entities eligible for the QBI include sole proprietorships, partnerships, S corporations and LLCs.
How Do I Claim the QBI Deduction?
Claiming the qualified business income deduction is fairly straightforward; it simply requires filling out IRS Form 8995 and including it with your 1040 form when you file your taxes. However, it’s important to note that there are certain rules and regulations that must be followed in order to claim the full amount allowed under the QBI deduction program; these rules vary based on whether or not you have employees in addition to yourself. As such, it’s always best to consult with a professional tax advisor before attempting to claim any deductions on your taxes.
The qualified business income deduction offers entrepreneurs and small-business owners some much-needed relief when it comes time to pay taxes each year. By taking advantage of this generous tax break — which could save thousands of dollars in taxes over time — self-employed individuals can ensure they’re getting every penny back they deserve at tax time! Just remember that eligibility requirements apply and it’s always best practice to consult with a professional before filing any deductions on your taxes. Good luck!