Tax Talk & Business Tips

Running a small business comes with unique tax advantages—and one of the most valuable is the Qualified Business Income (QBI) deduction. This provision, created under the 2017 Tax Cuts and Jobs Act, allows eligible business owners to deduct up to 20% of their qualified business income on their tax return.

But while the benefit can be significant, the rules can feel complex. Here’s what you need to know.

What is the QBI Deduction?

The QBI deduction is designed to give small businesses a tax break similar to the corporate tax cut. Instead of paying tax on 100% of business income, qualifying owners can deduct up to 20% of their net business profit, reducing taxable income.

This deduction applies to:

• • • • Sole proprietorships

      • Partnerships

      • S corporations

      • Certain trusts and estates

It does not apply to C corporations.

Who Qualifies?

Eligibility depends on your taxable income and the type of business you run.

1. Income thresholds (2024 amounts):

• • • • Single filers: $191,950

      • Married filing jointly: $383,900

        If your taxable income is below these thresholds, you generally qualify for the full 20% deduction.

2. Specified Service Trades or Businesses (SSTBs):

Professions like law, health, consulting, accounting, and financial services have stricter rules. If you’re above the income limits, your deduction may phase out.

3. Other businesses:

For non-SSTBs (like manufacturing, retail, or construction), the deduction is usually more straightforward, but wage and asset tests may still apply when income exceeds the limits.

How is it Calculated?

The deduction is generally the lesser of:

• • • 20% of your qualified business income, or

    • 20% of your taxable income (excluding capital gains).

For higher earners, calculations may also factor in:

• • • W-2 wages paid to employees, and

    • The cost of qualified property used in the business.

Why It Matters

The QBI deduction can translate into thousands of dollars in tax savings each year. For example, a sole proprietor earning $100,000 in qualified business income could potentially deduct $20,000—significantly lowering taxable income.

Key Considerations

• • • Keep good records. Accurate bookkeeping is essential for calculating QBI.

    • Plan around thresholds. Strategic timing of income and expenses may help keep you under the limits.
    • Each business is unique. Multiple business streams may need to be calculated separately.
      

FInal Thoughts

The QBI deduction is a powerful tool for small business owners, but it’s not one-size-fits-all. Understanding how it applies to your specific situation can help you maximize your tax savings.

👉 Ready to see how the QBI deduction could benefit your business? Our team at Certus can walk you through the details and ensure you’re getting the most out of your tax strategy. 

Schedule Your Consultation Here!