Qualified Business Income (QBI) Deduction
Quick definition
A federal deduction (Section 199A) that lets eligible self-employed taxpayers deduct up to 20% of their qualified net business income.
The Qualified Business Income (QBI) deduction, also called the Section 199A deduction, lets eligible pass-through business owners deduct up to 20% of their qualified net business income. It is separate from, and stacks on top of, your mileage and other business expense deductions.
How it interacts with mileage
Your mileage deduction lowers the net profit on your Schedule C. QBI is then calculated on that lower net profit. The two work in sequence: business expenses first, then 20% of what remains.
Eligibility in brief
Most sole proprietors and independent contractors qualify, subject to income thresholds above which limits and phase-outs apply. The deduction does not reduce self-employment tax, only income tax.
Related terms
Schedule C
The federal form self-employed workers use to report business income and expenses, including the mileage deduction.
Self-Employment Tax
The 15.3% tax on net self-employment income that funds Social Security and Medicare.
Sole Proprietorship
The simplest business structure. One person, no separate legal entity, income flows to the owner's personal tax return.
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