The QBI 20% Deduction

What is QBI? And what does it mean for small businesses? Qualified Business Income is the net amount of qualified items of income, gain, deduction and loss from any qualified trade or business. Only items included in taxable income are counted. In addition, the items must be effectively connected with a U.S. trade or business. Items such as capital gains and losses, certain dividends and interest income are excluded. The following are trades or business the IRS recognizes as falling into authorized categories. 

Specified service trade or business (SSTB), which includes a trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, investing and investment management, trading, dealing in certain assets or any trade or business where the principal asset is the reputation or skill of one or more of its employees.

This new deduction is also termed the “Section 199A deduction” or the “QBI deduction.”

For taxpayers with taxable income that exceeds $315,000 for a married couple filing a joint return, or $157,500 for all other taxpayers, the deduction is subject to limitations such as the type of trade or business, the taxpayer’s taxable income, the amount of W-2 wages paid by the qualified trade or business and the unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business.

Income earned through a C corporation or by providing services as an employee is not eligible for the deduction. So basically, the QBI falls into 3 categories, 2 of which will be described below: 

  a) Twenty percent (20%) of your QBI, plus 20 percent of your qualified REIT dividends and qualified PTP income, or 

 b) Twenty percent (20%) of your taxable income minus your net capital gains. 

This is a fantastic deduction that will help all small businesses in the USA.

Go to IRS website for further Q and A regarding this QBI deduction

https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-provision-11011-section-199a-qualified-business-income-deduction-faqs