Qualified Business Income (QBI) Deduction
(Tax-Aide In-Scope Items Only)
What Qualifies
- A sole proprietor can take up to 20% of QBI as a deduction on the tax return.
- The taxpayer can take up to 20% of REIT dividends (Sec. 199A dividends) as a deduction on the tax return.
How It Is Calculated
The QBI Deduction is the lesser of:
- 20% of qualified business income which is the net profit reported on a Sch C plus 20% of qualified REIT (Sec. 199A) dividends.
- The taxpayer’s Sch C profit is reduced by:
- The deductible part of the self-employment tax,
- The self-employment health insurance deduction,
- Contributions to certain qualified retirement plans (such as SIMPLE OR SEP — both out of scope; does not include traditional or Roth IRA contributions), and
- The new qualified tips deduction (discussed below).
- The taxpayer’s Sch C profit is reduced by:
Or
- 20% of taxable income before the QBID, before net capital gains and qualified dividends, and before the tips deduction that relates to the business. (A tips deduction arising from a W-2 job would not reduce QBI.)
Limitations
- Taxable income is not reduced below zero by the 20% deduction.
- The QBID can be claimed with any filing status.
- The 20% deduction is limited for higher incomes. For 2025, the threshold amount is $394,600 for MFJ returns and $197,300 for all other returns. (Out of Scope!)
Also Out of Scope
- Taxpayers with pass-through business income from an entity on a Sch K-1.
- Taxpayers who require Form 8995-A, Qualified Business Income Deduction, or
- Taxpayers who have a carryover loss — this will appear on the Form 8995 in the previous year’s return for a carryover loss on Lines 3 or 7.
Entering in TaxSlayer
The QBI Deduction (QBID) is calculated by TaxSlayer when any of the following are entered:
- Section 199A dividends on Form 1099-DIV
- Section 199A dividends on a Schedule K-1
- QBI from Schedule C (excluding any self-employment tip income included in the qualified tips deduction).
