We’ve had the 20% QBI (qualified business income) deduction for awhile. Your ability to take the deduction is limited if your income is over the taxable income threshold.
That’s confusion number one.
Then, we have a question about QBI itself. What constitutes QBI? Some common items have recently been clarified as to what reduces QBI (and thus reduces your deduction).
That’s confusion number two and what we’re talking about in this email.
If you have self-employment tax from a Schedule C, Sole proprietorship, or for active work you do inside a partnership, the deductible amount that is reported on Schedule 1 reduces your QBI for the 20% calculation.
Bottomline, watch out if you have self-employment tax and are taking the 20% deduction. You won’t get as much of a deduction as you hope.
If you have a self-employed health insurance deduction on Schedule 1, that also will reduce your QBI. That means less deduction.
And, if you have a self-employed retirement deduction on Schedule 1 that will also reduce your QBI. And that means less deduction too.
Interestingly enough, a charitable donation that is reported on your Schedule K-1 from a pass through entity does NOT reduce your QBI.
If you’re feeling a little lost right now, you aren’t alone. These can be complicated tax issues.
If you need help with your tax preparation, please contact us about our US TaxAid Services.