Tax
Qualified business income deduction
A deduction of up to 20% of qualified business income, available to owners of pass-through businesses.
Also called QBI, Section 199A, pass-through deduction.
It is a deduction against taxable income rather than an expense of the business, so it does not reduce self-employment tax and does not appear on Schedule C. It comes off later, on the personal return.
Above an income threshold the deduction is limited by the kind of work the business does and by its wages and property. Specified service trades (health, law, accounting, consulting, athletics, financial services and others) phase out entirely above the upper threshold.
It applies to sole proprietorships, partnerships and S-corps alike. It does not apply to wages, including the wages an S-corp pays its own owner.
Related
Terms that come up beside this one
Schedule C
The form a sole proprietor files with their personal return to report a business’s income and expenses.
S-corporation
A tax election under which a business pays its owner a salary and passes the remaining profit through to them without self-employment tax.
Pass-through entity
A business that pays no income tax itself and passes its profit to its owners to report.