QBI Deduction Calculator
Calculate your Qualified Business Income (QBI) deduction under Section 199A. Determine if you qualify for the 20% pass-through deduction and understand phase-out thresholds.
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About This Calculator
The Qualified Business Income (QBI) deduction, also known as the Section 199A deduction, allows eligible self-employed individuals and small business owners to deduct up to 20% of their qualified business income. Created by the Tax Cuts and Jobs Act of 2017, this deduction can provide significant tax savings for pass-through entities including sole proprietorships, partnerships, S corporations, and certain trusts and estates.
What Is the QBI Deduction? The QBI deduction allows qualifying taxpayers to deduct up to 20% of:
- Qualified business income from pass-through entities
- Qualified REIT dividends
- Publicly traded partnership income
Who Qualifies:
- Sole proprietors (Schedule C filers)
- Partners in partnerships
- S corporation shareholders
- Some trust and estate beneficiaries
- Must have taxable income to benefit
Key Limitations:
- Income thresholds trigger phase-outs
- Specified Service Trades or Businesses (SSTBs) face restrictions
- W-2 wage and property limitations for high earners
- Cannot exceed 20% of taxable income
Why This Deduction Matters: For qualifying business owners, the QBI deduction can reduce the effective tax rate on business income by up to 20%. On $100,000 of QBI, that's a potential $20,000 deduction, saving $4,000-$7,400 in taxes depending on your bracket.
This calculator helps estimate your QBI deduction. For self-employment taxes, see our Self-Employment Tax Calculator. For quarterly payments, visit our Quarterly Tax Calculator.
How to Use the QBI Deduction Calculator
- 1Enter your qualified business income (net profit from Schedule C or K-1).
- 2Input your taxable income before the QBI deduction.
- 3Select your tax filing status (affects threshold amounts).
- 4Choose whether your business is an SSTB or non-SSTB.
- 5Enter W-2 wages paid by the business (if any).
- 6Input the unadjusted basis of qualified property (if applicable).
- 7Add any net capital gains (affects overall limitation).
- 8Review your QBI deduction and applicable limitations.
- 9Note the estimated tax savings at different brackets.
- 10Consider planning strategies if near phase-out thresholds.
Understanding the QBI Deduction
The QBI deduction provides significant tax relief for pass-through business income.
Basic Calculation
Simple Formula: QBI Deduction = 20% of Qualified Business Income
Subject To:
- W-2 wage/UBIA limitation (for high earners)
- SSTB phase-out (for service businesses)
- Overall taxable income limitation
Income Thresholds (2024)
| Filing Status | Full Deduction Below | Phase-Out Range | No Deduction Above (SSTB) |
|---|---|---|---|
| Single | $191,950 | $191,950-$241,950 | $241,950 |
| Married Filing Jointly | $383,900 | $383,900-$483,900 | $483,900 |
| Married Filing Separately | $191,950 | $191,950-$241,950 | $241,950 |
Three Possible Limitations
- 20% of QBI - Basic calculation
- W-2 Wage/UBIA Limit - For high earners
- 20% of Taxable Income - Overall cap
Your deduction is the LESSER of these amounts.
Specified Service Trades or Businesses (SSTBs)
SSTBs face special restrictions on the QBI deduction.
What Is an SSTB?
Businesses Where Principal Asset Is:
- Reputation or skill of employees/owners
- Services in specified fields
SSTB Fields
| Category | Examples |
|---|---|
| Health | Doctors, dentists, nurses, therapists |
| Law | Attorneys, paralegals |
| Accounting | CPAs, bookkeepers, tax preparers |
| Actuarial Science | Actuaries |
| Performing Arts | Actors, musicians, entertainers |
| Consulting | Business consultants, advisors |
| Athletics | Athletes, coaches, team owners |
| Financial Services | Investment advisors, brokers |
| Brokerage Services | Real estate/insurance agents (debated) |
SSTB Phase-Out Rules
Below Lower Threshold:
- Full 20% deduction available
- SSTB status doesn't matter
In Phase-Out Range:
- QBI, W-2 wages, and UBIA are proportionally reduced
- Partial deduction available
Above Upper Threshold:
- NO deduction for SSTBs
- Non-SSTBs still get deduction (with W-2/UBIA limits)
Engineering and Architecture Exception
Good News:
- Engineering and architecture are NOT SSTBs
- These professionals get full QBI treatment
- Originally proposed as SSTBs but removed
W-2 Wage and UBIA Limitations
High earners face additional limitations based on wages and property.
When W-2/UBIA Limits Apply
Below Lower Threshold: No limitation In Phase-Out Range: Limitation phases in Above Upper Threshold: Full limitation applies
The W-2/UBIA Calculation
Your limit is the GREATER of:
- 50% of W-2 wages, OR
- 25% of W-2 wages + 2.5% of UBIA
What Counts as W-2 Wages?
Included:
- All W-2 wages paid by the qualified business
- Wages paid to you (if S-Corp)
- Wages paid to employees
Not Included:
- 1099 contractor payments
- Guaranteed payments to partners
- Owner draws
What Is UBIA?
Unadjusted Basis Immediately After Acquisition:
- Original cost of qualified property
- Buildings, equipment, machinery
- Must be depreciable property
- Must still be in depreciable period or 10 years
Strategy for High Earners
If No W-2 Wages or Property:
| QBI | 20% Deduction | W-2/UBIA Limit | Actual Deduction |
|---|---|---|---|
| $200,000 | $40,000 | $0 | $0 |
Solution:
- Pay yourself W-2 wages (S-Corp)
- Invest in qualified property
- Or keep income below threshold
Calculating QBI
Properly calculating qualified business income is essential.
What Counts as QBI?
Included:
- Net profit from Schedule C
- K-1 income from partnerships
- K-1 income from S corporations
- Qualified REIT dividends
- Qualified PTP income
NOT Included:
- W-2 wages (employee income)
- Capital gains/losses
- Interest income (unless trade/business)
- Dividend income (unless qualified REIT)
- Guaranteed payments to partners
- Investment-related income
Adjustments to QBI
Reduce QBI By:
- Self-employed health insurance deduction
- Half of SE tax
- Retirement contributions (SEP, SIMPLE)
Example:
| Item | Amount |
|---|---|
| Schedule C Net Profit | $120,000 |
| Less: SE tax deduction | ($8,478) |
| Less: Health insurance | ($12,000) |
| Less: SEP-IRA | ($20,000) |
| QBI | $79,522 |
| QBI Deduction (20%) | $15,904 |
Multiple Businesses
If You Have Multiple Businesses:
- Calculate QBI for each separately
- Losses reduce positive QBI from others
- Cannot create negative QBI deduction
- Each business evaluated for SSTB status
Strategies to Maximize Your QBI Deduction
Several strategies can help optimize your QBI deduction.
Income Management
Stay Below Thresholds:
- Time income and deductions
- Maximize retirement contributions
- Defer income if near threshold
- Accelerate deductions
Example Strategy:
- MFJ with $400,000 taxable income
- $16,100 above threshold
- Max out 401(k): $23,000 (2024)
- Now at $377,000 - below threshold
- Full 20% QBI deduction restored
Business Structure
Consider S-Corp Election:
- Pay yourself W-2 wages
- Creates W-2 wages for limitation
- May save SE tax too
- Analyze break-even point
Hire Family Members:
- Creates W-2 wages
- Shifts income to lower brackets
- Must be legitimate work
Property Investments
Acquire Qualified Property:
- Equipment, machinery, buildings
- Creates UBIA for limitation
- Must be used in business
- 2.5% of UBIA adds to limit
Aggregation Election
Combine Related Businesses:
- Meet certain requirements
- Pool W-2 wages and UBIA
- May increase deduction
- Cannot "de-aggregate" later
QBI Deduction vs. Itemized Deductions
The QBI deduction is separate from itemized deductions.
How It Works
QBI Is an "Other" Deduction:
- Not part of itemized deductions
- Not part of standard deduction
- Claimed on Line 13 of Form 1040
- Taken in addition to standard/itemized
Example Tax Calculation
| Item | Without QBI | With QBI |
|---|---|---|
| Gross Income | $150,000 | $150,000 |
| Standard Deduction | ($29,200) | ($29,200) |
| QBI Deduction | - | ($20,000) |
| Taxable Income | $120,800 | $100,800 |
Comparison to Corporate Tax
| Business Type | Effective Rate on $100K |
|---|---|
| C-Corporation | 21% federal |
| Pass-Through (no QBI) | Up to 37% |
| Pass-Through (with QBI) | Up to 29.6% |
The QBI deduction was designed to give pass-through businesses rate parity with C-corporations's 21% rate.
Planning Consideration
QBI Deduction Sunset:
- Currently set to expire after 2025
- Congress may extend or make permanent
- Plan for potential expiration
- May affect business structure decisions
Pro Tips
- 💡Monitor your taxable income relative to QBI phase-out thresholds.
- 💡Maximize retirement contributions to stay below thresholds if close.
- 💡Consider S-Corp election if you need W-2 wages for the limitation.
- 💡Keep records of qualified property basis for UBIA calculation.
- 💡Evaluate whether your business qualifies as an SSTB carefully.
- 💡Consult a tax professional for complex situations with multiple businesses.
- 💡Remember that engineering and architecture are NOT SSTBs.
- 💡The deduction is separate from standard/itemized deductions.
- 💡Plan for potential expiration after 2025.
- 💡QBI is reduced by self-employment deductions (SE tax, health insurance).
- 💡Aggregate related businesses to pool W-2 wages and UBIA if beneficial.
- 💡Time income and deductions strategically around year-end.
Frequently Asked Questions
The QBI (Qualified Business Income) deduction allows eligible self-employed individuals and pass-through business owners to deduct up to 20% of their qualified business income from their taxes. It's also called the Section 199A deduction and was created by the Tax Cuts and Jobs Act of 2017.
