Question

Taxpayers are allowed a deduction up to 20% of the qualified business income (QBI). QBI includes business income from sole proprietorships (Schedule C) and flow-through entities such as partnerships, limited liability companies, S corporations, trusts, and estates. Is this deduction the same as "Itemized deduction", and do you feel C Corporations should quality for this deduction.

Answer 1

The qualified business income deduction (QBI deduction) allows some individuals to deduct up to 20% of their business income, REIT dividends, or PTP income on their individual income tax returns. Those who can claim the QBI deduction include sole proprietors, the partners of a partnership, the shareholders in S corporations, as well as some trusts and estates.

The QBI deduction lowers your taxable income, which is the amount used to determine how much annual income tax you owe. Filers can claim the deduction whether they take the standard deduction or itemize their deductions.

The maximum possible deduction is limited once you reach a certain threshold of taxable income. Working in certain fields or trades can also affect your available deduction. Only domestic business income is eligible, and you will probably receive a copy of Schedule K-1 if you have eligible QBI.

The QBI deduction was created by the Tax Cuts and Jobs Act of 2017, a major reform of the federal tax code. Section 199A details the deduction, so you may also see it called the Section 199A deduction. The deduction has also changed in just the two years of its existence, with Form 8995 or Form 8995-A now required.

Some businesses, called pass-through entities, do not pay the corporate income tax rates. Instead, the business’ income is passed onto the individual owners, who divide it up and pay tax on it on their individual tax returns, along with any other personal income they have. In this case, the business itself is a taxable entity according to the IRS. Taxable entities can also include things like organizations and trusts. You may also see the terms pass-through business or flow-through entity.

Pass-through entities that may be able to claim the QBI deduction include

• Sole proprietorships
• Partners in partnerships
• Shareholders in S corporations
• Members of an LLC
• Beneficial owners of a trust or estate

Other types of businesses that don’t qualify

In addition to SSTB income, income from these three sources does not qualify for the QBI deduction:

• C corporations
• Any trade or business whose principal asset is the reputation or skill of one or more of its employees or owners
• Services you performed as an employee of another person or business

You can claim the qualified business income deduction even if you don't itemize. That is, if you use the standard deduction, this deduction is still available to you.

QBI deduction is for small tax payers and i dont feel C corporations require QBI deduction