QBI Deduction
Qualified Business Income deduction allowing up to 20% deduction for pass-through entities.
The QBI deduction (Section 199A) allows owners of pass-through businesses (sole proprietors, S corps, partnerships) to deduct up to 20% of qualified business income from their taxable income. Phase-outs apply for specified service businesses (law, accounting, consulting) above certain income thresholds ($191,950 single / $383,900 joint in 2024).
Example
A freelance developer with $100,000 in QBI claims a $20,000 QBI deduction, reducing taxable income to $80,000 and saving approximately $4,800 in the 24% bracket.
Why It Matters for Your Business
The QBI deduction is one of the largest tax breaks available to small business owners, potentially saving thousands of dollars annually through 2025 when it's currently set to expire.
Practical Tips
- •Calculate whether your income exceeds the phase-out thresholds for specified service businesses.
- •Consider the W-2 wage and property limitations that apply above the income thresholds.
Related Terms
More Taxes Terms
Adjusted Gross Income
Gross income minus specific deductions like retirement contributions.
Tax Audit
An examination of tax returns by the IRS to verify accuracy.
Capital Gains
Profit from selling an asset for more than its purchase price.
Capital Loss
Loss from selling an asset for less than its purchase price.
Tax Deduction
An expense that reduces taxable income.
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