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What’s the Qualified Business Income Deduction and Can You Claim It?

February 3, 2020

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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.

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