Section 199A Qualified Business Income Deduction

Section 199A Qualified Business Income Deduction

The Section 199A Qualified Business Income Deduction is a provision in the U.S. tax code that allows eligible taxpayers to deduct up to 20% of their qualified business income (QBI) from pass-through entities such as sole proprietorships, partnerships, S corporations, and certain trusts and estates.

Qualified business income includes the net income from a qualified trade or business, but it excludes investment income, capital gains, and certain other income types. The deduction is subject to various limitations based on the taxpayer’s overall taxable income and the nature of the business. Additionally, specified service trades or businesses may face phase-out limits if the taxpayer’s income exceeds certain thresholds.

For example, if a sole proprietor has $100,000 in QBI, they could potentially deduct $20,000 (20% of $100,000) from their taxable income, thereby reducing their overall tax liability.