The Qualified Business Income (QBI) Deduction is a relatively new income tax deduction available to certain types of businesses. If you’re just joining us, check out our previous article for some background on the QBI deduction and what businesses and types of income qualify. Today, we’re looking at the income thresholds taxpayers need to be within to qualify, what forms to use, and where QBI gets calculated into federal income tax.
Making the Cut
Assuming the business income met the qualifications in our previous article, QBI is also dependent on the income of the individual taxpayer filing their return. For 2019, single filers with taxable income of less than or equal to $160,700 ($321,400 for married filing jointly) can take the full 20% deduction. Single filers with taxable income up to $210,725 ($421,400 for married filing jointly) can claim a reduced QBI deduction.
As for the specified service, trade or businesses (SSTBs) mentioned in the previous article, if an SSTB’s taxable income is within these thresholds, they may qualify for QBI up to certain applicable percentages and exceptions. So let’s take an example:
Ted is the sole owner of a small online apparel shop. After adding together the income of $60,000 earned from his business with the income from his regular job, his taxable income totals to $150,000 to qualify for the full deduction. Using the $60,000 earned from his business, Ted calculates that his QBI deduction will be $12,000 ($60k x 20%).
Making the Claim
QBI is claimed by using Form 8995. Taxpayers with income above the thresholds for the full deduction use Form 8995-A. The QBI is then reported on line 10 of the individual Form 1040. In the income tax formula, the QBI is calculated as a “below the line” deduction (like an itemized deduction) to lower the AGI towards the individual’s taxable income and ultimately towards what someone will owe in taxes.
Small and emerging businesses can definitely take advantage of the new Qualified Business Income deduction. Trusted accounting firms can help those business make the most of those and other deductions. MiklosCPA has helped many emerging businesses with their tax and accounting needs. Learn more how we may help YOUR business & drop us a line. Also check out our social media pages for additional tax tidbits.