What are the phase-out income limits for QBI?

For the tax year 2023, the phase-out income limits are $464,200 for married filing jointly and $232,100 for all other taxpayers.

What qualifies as a specified service business?

Specified service trade or business (SSTBs) refers to any trade or business that provides services in the fields of accounting, law, health, performing arts, consulting, brokerage services, financial services, athletics, or actuarial science. Any other business/trade where the taxpayer receives income for product/service endorsements, use of image or likeness, or media appearances are also considered SSTBs.

Where does QBI go on your tax return?

QBI deductions are filed on either Form 8995, Qualified Business Income Deduction Simplified for non-SSTBs, or Form 8995-A, Qualified Business Income Deduction for SSTB businesses. Once these forms are filled out, you will report the QBI deduction amount on line 13 of form 1040 and attach them to the rest of your individual tax return when it’s time to file.

What is an example of a QBI deduction?

Here is a simple example of QBI deductions: Your total taxable income for the year is $150,000. Of this amount, $60,000 is Qualified Business Income, or QBI. Multiply $60,000 by 20% to arrive at your final QBI deduction amount, which is $12,000.

What is the rule for QBI wages?

For non-SSTB businesses paying W-2 wages with business income above the highest QBI threshold, a good rule to abide by is the 2/7 rule. In order to qualify for the highest possible deduction, the wages paid should equal about 2/7th of your business income.

How do you know if I have a QBI deduction?

You are eligible to claim a QBI deduction if you have ownership interests in a qualified business or trade. Qualified business entities include partnerships, limited liability companies (LLCs), S corporations, and sole proprietorships. These are also known as pass-through entities. If your business entity type qualifies, you’ll need to calculate the QBI deduction considering your total taxable income and the threshold limit amounts set for the tax year.

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