20% QBI Deduction Calculator 2021

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20% QBI Deduction Calculator is an easy to compute calculator for the deduction that started after the amended Internal Revenue Code (courtesy Tax Cuts & Jobs Act ) came into force. So from the tax year 2018, sole proprietors, partnership firms, S corporations and some trusts and estates are eligible for a qualified business income (QBI) deduction under Section 199A of 26 US Code.

How much is QBI Deduction?

The QBI deduction is limited to 20 per cent of their qualified business income (QBI), plus 20 per cent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. The Qualified Business Income or QBI Calculator deduction calculator given below is for individuals and Estate & trust and having a maximum of three pass-through businesses.

20% QBI Deduction Calculator for Individuals for 2021

What is qualified business income?

Qualified Business Income (QBI ) is generally income from partnerships, S corporations, sole proprietorships, and certain trusts.

But the following types of income is not included for qualified business income (QBI ) :

  1. Any income that can not be includable in taxable income
  2. Capital gains or losses or dividends or other investment income
  3. Interest income not properly allocable to a trade or business
  4. Salary or wage income
  5. Income earned outside United States which has no connection with any business or profession in USA.
  6. Commodities transactions or foreign currency gains or losses
  7. Certain dividends and payments in lieu of dividends
  8. Income, loss, or deductions from notional principal contracts
  9. Annuities, unless received in connection with the trade or business
  10. Amounts received as reasonable compensation from an S corporation
  11. Amounts received as guaranteed payments from a partnership
  12. Payments received by a partner for services other than in a capacity as a partner
  13. Qualified REIT dividends
  14. PTP income

How the qualified business income deduction works ?

There are a couple of aspects of the pass-through deduction to keep in mind:

1. You can’t claim a QBI deduction of more than 20% of your total taxable income. You compute your business profit on Schedule C, as normal. And then calculate your adjusted gross income on Form 1040, as usual. Only after that, you should compute the pass-through deduction.

2,. Claim QBI deduction even if you don’t itemize and claim the standard deduction

What is a pass-through business?

Any business that is not charged tax on the corporate tax rate, is a pass-through business. On this basis, owners of a sole proprietorship, partnership, or S corporation pays tax on the individual income tax rates and files individual tax. Some startling facts about pass-through businesses in USA are that a small number of large businesses account for the majority of pass-through profits and economic activity. Also, many pass-through businesses pay lower tax rates than C-corporations.

Who can claim QBI deduction & Who can not ?

The deduction is available to sole proprietors, partnership firms, S corporations and some trusts and estates. The QBI deduction is available to individuals and others even if one opts for the standard deduction. But, if you earned income earned through a C corporation you can not claim QBI deduction. You can also not claim this deduction if you earned income by providing services as an employee. Read more on IRS Publication 535. PDF

20% QBI deduction phase out limits

The 20% Qualified Business Income starts getting reduced as the total income for the year 2020 exceeds $163,300 for single filers or $326,600 for joint filers. For 2021, the limits are $164,900 for single filers and $329,800 for joint filers.

It completely vanishes the moment your total income reaches $213,300 (single filers) or $426,600 (joint filers). For 2021 the outer limit of total income is $214,900 (single filer) , or $429,800 (joint filer)

Also, read 25 deductions to self-employed persons

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