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Simplified: The Qualified Business Income Deduction (Section 199A)

The Qualified Business Income Deduction is a taxpayer deduction within the United States relating to trade or business with qualified part or services of income, gain, deductions or losses within a tax year.

The Qualified Business income Deduction may also be referred to as:

  • Section 199A Deduction

  • Passthrough Deduction

  • QBI Deduction.

Qualifying Companies

  • Sole proprietorship

  • Partnership

  • LLC

  • S Corporation

Qualifying earned income from a pass through entity sees a 20% deduction. However, a limitation to the Section 199A deduction is that it may not exceed more than 20% of the taxpayer’s income. Furthermore, two other limitations are the wage and specified service business limitation.

The wage limitation is for a taxable income above the threshold of $315,000 for married filing jointly and $157,500 for any other taxpayer (These thresholds are subject to change).

The service business limitation identifies businesses that do not qualify for the Section 199A deduction.

  • Any trade or business that the principal asset is the skill of one or more of the employees.

  • Certain Trade and business such as: Health, law, accounting, financial services, brokerage service, investing, investment management, trading, dealing in securities, and partnership interest.

Additional exclusions

  • Short-term Capital gains or losses and long-term capital gains and losses

  • Dividend Income

  • Doesn’t include income earned outside of the United States


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