Tax time can be a stressful one for business owners. Luckily, since the 2018 tax year, small business owners and self-employed taxpayers have been able to take advantage of the qualified business income deduction (QBI) to deduct up to 20% of their qualified business income on their taxes.

The IRS places limits on how much income a business can generate before becoming ineligible for the QBI depending on whether the business is classified as a trade or business or a service business. In 2022, those limits are $170,050 for single filers and $340,100 for joint filers. If you’re over that limit, you may still be eligible for a full or partial deduction, but the rules surrounding these exceptions are complicated, and is best saved for a tax professional like LRS.

What Can Be Counted As Qualified Business Income?

As the name implies, your qualified business income is just that–the total amount of net profit that your business generates over the course of the year. However, that doesn’t mean all of your profits count towards qualified business income.

QBI does not count:

  • Your capital gains or losses
  • Your dividends
  • Your interest income
  • Your income earned outside the U.S.
  • Certain wage and guaranteed payments made to partners and shareholders

Who Is Eligible For Qualified Business Income?

If you have pass-through income–that is, income from your business that you report on your personal tax return–you are eligible for the QBI. This includes sole proprietorships, partnerships, S-corporations, and LLCs.

What If I’m Over The Income Limit for QBI?

If your business is a “specified service business,” the limits go up to total taxable income of $220,050 if you’re single, and $440,100 if you’re jointly filing. If your business is not a service business you are not limited to your taxable income.

Specified service trade or business are businesses like a doctor, lawyer, consultant, actor, or financial planner. You can check out the full list from the IRS to see if your business qualifies!