Financial Glossary
Qualified Business Income Deduction (QBI)
The Qualified Business Income (QBI) deduction allows eligible owners of pass-through businesses, such as sole proprietorships, partnerships, and S corporations, to deduct a portion of their qualified business income on their personal return. It is reported on Form 8995 or Form 8995-A and is subject to income thresholds, business-type limitations, and wage-and-property tests at higher income levels.
Problem & Application
STR operators, campground owners, and other owner-operated businesses structured as pass-throughs can see a meaningful reduction in taxable income from QBI, but eligibility hinges on how the activity is classified and whether it rises to the level of a trade or business. Getting the entity structure and income classification right is what determines whether the deduction is available at all.
In Short
QBI can be one of the larger deductions available to small-business owners, but the rules are intricate and income-sensitive. Verify current thresholds and qualification rules with IRS guidance for the filing year.