The Tax Cuts and Jobs Act drastically cut the corporate tax rate. But it also introduced the qualified business income (QBI) deduction. The QBI offers a way to lower the effective tax rate on the profits of owners of pass-through entities. These include sole proprietorships (including independent contractors), partnerships, limited liability companies, and S corporations.
The QBI deduction can prove a helpful tax reduction for those owners who qualify for it. But because it remains a deduction and not a tax rate reduction. So its effectiveness depends on an owner’s tax bracket. It represents a temporary measure in the tax law. And it sunsets after 2025 unless Congress acts. It also can prove very, very complicated.