Transparent method
The formula
Worked example
Example inputs
How to interpret the result
The qualified business income deduction phases and limits differently depending on business type, specified service trades face restrictions that other pass-through businesses don't, and once income crosses certain thresholds, wage and property limitations start constraining the deduction in ways that don't apply at all below those thresholds.
Before you rely on it
What to check
Confirm whether your specific business type faces service-trade restrictions and check current income against the thresholds where wage and property limitations begin to apply.
The common error
Where people go wrong with QBI deduction calculator
Applying a flat QBI deduction percentage without checking business type and income against the thresholds where restrictions and limitations kick in. A specified service business above the threshold faces limits that a different business type or a lower income level wouldn't encounter at all.
Sensitivity evidence
How qualified business income changes the simplified QBI deduction
| Qualified business income | Simplified QBI deduction | Estimated tax effect | Taxable income after deduction |
|---|---|---|---|
| $96,000 | $19,200 | $4,608 | $130,800 |
| $108,000 | $21,600 | $5,184 | $128,400 |
| $120,000worked example | $24,000 | $5,760 | $126,000 |
| $132,000 | $26,400 | $6,336 | $123,600 |
| $144,000 | $28,800 | $6,912 | $121,200 |
Every input, tested
Which input moves the simplified QBI deduction most
| Input | Tested from | To | Simplified QBI deduction at each end | Swing |
|---|---|---|---|---|
| Qualified business income | $108,000 | $132,000 | $21,600 to $26,400 | $4,800 (20%) |
| Entered eligible QBI percentage | 98.0% | 102.0% | $23,520 to $24,480 | $960 (4.0%) |
| Taxable income before QBI deduction | $135,000 | $165,000 | $24,000 to $24,000 | none |
| Estimated marginal tax rate | 22.0% | 26.0% | $24,000 to $24,000 | none |
Two variables at once
Simplified QBI deduction by qualified business income and entered eligible QBI percentage
| Qualified business income \ Entered eligible QBI percentage | 96.0% | 100.0% | 104.0% |
|---|---|---|---|
| $96,000 | $18,432 | $19,200 | $19,968 |
| $108,000 | $20,736 | $21,600 | $22,464 |
| $120,000 | $23,040 | $24,000 | $24,960 |
| $132,000 | $25,344 | $26,400 | $27,456 |
| $144,000 | $27,648 | $28,800 | $29,952 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Qualified business income | $120,000 |
| Taxable income before QBI deduction | $150,000 |
| Entered eligible QBI percentage | 100.0% |
| Estimated marginal tax rate | 24.0% |
| Simplified QBI deduction | $24,000 |
| Estimated tax effect | $5,760 |
| Taxable income after deduction | $126,000 |
Where the inputs come from
Qualified business income is the net profit from a qualifying pass-through business, such as a sole proprietorship, partnership or S corporation, after business deductions and the deductions for half of self-employment tax, the self-employed health insurance deduction and retirement contributions. Taxable income before the deduction sets the cap. The eligible percentage adjusts for the wage and property limits and for specified service businesses above the income thresholds, which this simplified tool takes as an input.
When the result stops applying
Above the income thresholds, the deduction is limited by the W-2 wages paid and the property owned by the business, and for specified service trades such as law, health and consulting it phases out entirely. The rules are intricate, and rental income, aggregation and losses add complications. The provision has been extended in law but check the current status. This tool is a simplified estimate.
What to compare it with
See the federal income tax and self-employment tax calculators for the other pieces of the return. The marriage tax and tax withholding pages help with planning. A tax professional can determine whether your business is a specified service trade and how wages and property limits apply.
People also ask
Frequently asked questions
Who qualifies for the QBI deduction?
Owners of sole proprietorships, partnerships, S corporations and some trusts and estates with qualified business income. Wages you earn as an employee do not qualify.
What is a specified service trade?
A business in fields such as health, law, accounting, consulting and financial services, where the deduction phases out above certain taxable income levels.
Does the QBI deduction reduce self-employment tax?
No. It reduces income tax only. Self-employment tax is calculated on your net profit before the deduction.