Qualified Business Income (QBI)

Qualified Business Income (QBI) refers to the net income generated by a qualified trade or business that is eligible for a tax deduction under Section 199A of the Internal Revenue Code.

QBI includes the income from sole proprietorships, partnerships, S corporations, and certain trusts and estates, but it excludes capital gains or losses, interest income, and reasonable compensation paid to the taxpayer by the business.

For example, if a sole proprietor earns $100,000 from their business, and incurs $30,000 in expenses, their QBI would be $70,000. Taxpayers may be able to deduct up to 20% of their QBI, resulting in potential tax savings. However, limitations and thresholds may apply based on income levels and the type of business.