With less than a month before the IRS tax filing deadline, readers pose their questions about credits, deductions and more. One of the most popular topics this tax season is the Qualified Business Income (QBI) deduction, which allows small business owners and self-employed individuals to deduct up to 20% of their qualified business income. This deduction was introduced as part of the 2017 Tax Cuts and Jobs Act, aimed at reducing tax liabilities for these individuals.
The 2017 Tax Cuts and Jobs Act reduced tax liabilities through changes to several income and business tax policies. When those expire in 2025, the QBI deduction will no longer be available unless Congress decides to extend it. This deduction is designed to provide tax relief to pass-through entities, such as sole proprietorships, partnerships, and S corporations.
How to qualify for the QBI deduction. If your total taxable income — that is, not just your business income but other income as well — is at or below $164,900 for single filers or $329,800 for married filers filing jointly, you may be eligible for the full 20% deduction. However, there are limitations and phase-out thresholds for certain types of businesses and industries.
Is your business qualified for the pass-through deduction? Find out and see if you can get it. To qualify for the QBI deduction, your business must be considered a trade or business under the Internal Revenue Code (IRC) and must generate income that is eligible for the deduction. Unlike many important terms that are defined either in the IRC or Treasury Regulations, the term “trade or business,” which comes up when determining QBI eligibility, is not explicitly defined.
QBI or Qualified Business Income can trigger a tax deduction for some small business owners or self-employed individuals. The deduction is calculated based on the net income from your business, excluding capital gains, dividends, and other non-business income. Pass-through entities can also take advantage of this deduction, which can result in significant tax savings.
Explore the IRS inflation-adjusted 2024 tax brackets, for which taxpayers will file tax returns in early 2025. Understanding how your income and deductions affect your tax bracket can help you maximize your tax savings and take advantage of deductions like the QBI deduction. Here are 15 popular tax deductions you can claim if you're self-employed, including credit card interest and health insurance premiums.
