Do I qualify for the Qualified Business Income deduction?

What is QBI?

The Qualified Business Income (QBI) deduction, also known as Section 199A, allows certain businesses, including sole proprietors, partnerships, LLCs, and S corporations, to claim up to 20% of business income from taxable income. 

Qualified business income is the net amount of business income that does not include interest, dividends, or capital gains. It also does not include foreign income. 

Do I qualify for the Qualified Business Income deduction?

As either a sole proprietor or an S corp owner, you do! This deduction is given to anyone that has a Schedule C, Profit or Loss from Business, or a Schedule K-1 from their S corp on their Form 1040.

However, a key difference is that S corporations are required to pay their owners a reasonable salary. Since QBI is calculated based on net business income—meaning business income after deducting expenses—the salary paid to owners will consequently decrease the QBI deduction.

Qualifying for QBI

First, the QBI deduction is available to pass-through businesses, but it is further limited to whether or not the business qualifies as a Specified Service Trade or Business (SSTB). As a mental health professional, this means that you are limited in your ability to apply the advantageous deduction. This deduction is most relevant at the end of the year when you file your 1040 personal tax return.

The next qualification factor depends on the individual’s adjusted gross income. Please note the table below contains the limits for the 2024 tax year.