QBI Deduction (Section 199A) Interactive Explainer

QBI Deduction Guide

Overview Key Concepts Which Form to Use? Simplified Simulator

Qualified Business Income (QBI) Deduction

A major tax benefit for owners of pass-through businesses, allowing you to deduct up to 20% of your qualified business income.

The Core Tax Benefit

Deduct up to 20%

of your Qualified Business Income (QBI) + 20% of qualified REIT dividends and Publicly Traded Partnership (PTP) income.

This deduction is taken "below the line," meaning it reduces your overall taxable income, but not your Adjusted Gross Income (AGI).

Understanding Key Concepts

Qualified Business Income (QBI)

QBI is the net amount of qualified items of income, gain, deduction, and loss from any of your qualified trades or businesses. This essentially means the "profit" from your business.

Generally INCLUDED in QBI:

• Income from a sole proprietorship (Schedule C)
• Your share of income from a partnership or S corporation
• Income from rental real estate that qualifies as a business

Generally EXCLUDED from QBI:

• W-2 wage income as an employee
• Capital gains or losses
• Dividends and interest income
• Guaranteed payments from a partnership
• Income earned outside the United States

Specified Service Trade or Business (SSTB)

An SSTB is a trade or business involving the performance of services in certain fields. If your business is an SSTB and your income is high, your QBI deduction might be limited or eliminated.

Common SSTB Fields:

Health, Law, Accounting, Actuarial Science, Performing Arts, Consulting, Athletics, Financial Services, Brokerage Services, and any business where the principal asset is the reputation or skill of one or more of its employees or owners.

The SSTB limitation only applies if your taxable income is above the threshold.

The Two Main Limitations

Your QBI deduction is subject to two major limitations:

1. The High-Income Limitation: If your taxable income is above a certain threshold, your deduction for each business may be limited to the greater of:
   • 50% of the W-2 wages paid by the business, OR
   • 25% of the W-2 wages paid PLUS 2.5% of the unadjusted basis immediately after acquisition (UBIA) of all qualified property.
2. The Overall Limitation: Your total QBI deduction cannot exceed 20% of your taxable income (before the QBI deduction) minus your net capital gain.

Which Form Should I Use?

Question 1: Taxable Income Level

Is your 2024 taxable income (before the QBI deduction) at or below the threshold?

$191,950 (Single, MFS, HOH) / $383,900 (MFJ)

Question 2: Business Type

Are you a patron in a specified agricultural or horticultural cooperative?

Simplified Deduction Simulator

For those who can use Form 8995 (income below the threshold). This simulates the core calculation, excluding loss carryforwards for simplicity.

1. Enter Your Income Components

Total Qualified Business Income (QBI)

$

Total Qualified REIT Dividends & PTP Income

$

2. Enter Overall Income Limits

Taxable Income (before QBI deduction)

$

Net Capital Gain (+ Qualified Dividends)

$

Your Potential QBI Deduction

QBI Component (QBI x 20%) $0

REIT/PTP Component (Income x 20%) $0

Total Potential Deduction $0

Overall Income Limitation $0

Final QBI Deduction (Smaller of the two)

$0

This guide is a simplified summary based on the provided IRS forms and instructions. It is for informational purposes only and is not tax advice. Consult a qualified professional for your specific situation.