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).

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).


Go Back