Can You Deduct 20% of Your Business Income? Let’s Find Out
If you’re a business owner looking to reduce your tax bill, there’s one deduction you definitely want to understand: the Qualified Business Income Deduction (QBID).
It’s one of the most generous tax breaks to come out of the Tax Cuts and Jobs Act – but it’s also one of the most confusing.
This week, we’re demystifying QBID: what it is, who qualifies, and how you can take full advantage of it.
Let’s go!
What Is the Qualified Business Income Deduction?
In simple terms, the QBID allows eligible business owners to deduct up to 20% of their qualified business income (QBI) from their taxable income.
This isn’t a deduction on your business return – it’s taken on your personal tax return, which makes it extra valuable for pass-through entities.
That means more of your income stays in your pocket, not the IRS’s.
Who Qualifies?
This deduction is available to owners of pass-through entities, including:
- Sole proprietorships
- Partnerships
- S corporations
- Some LLCs
C-corporations? Not eligible. But for many small businesses, this deduction is a game-changer.
How Does It Work?
Let’s say your business earns $100,000 in qualified income.
If you qualify for the full deduction, you could deduct $20,000 from your personal taxable income – even if you don’t itemize deductions.
But of course, there’s a catch (or several).
Common Limits and Considerations
The deduction isn’t one-size-fits-all. Here are a fey key limitations:
- Income Thresholds
If your total taxable income is below a certain amount ($191,950 for single filers, $383,900 for joint filers in 2024), you likely get the full deduction.
Above those thresholds? The rules get more complex – especially for certain “specified service trades or businesses” (SSTBs), like:
- Law
- Accounting
- Consulting
- Health services
- Wages and Assets Rule
If your income is over the threshold, your deduction may be limited by how much you paid in wages or how much property your business owns.
- Not All Income Qualifies
QBI only includes income from your business’s operations. It excludes:
- Capital gains or losses
- Interest income
- Certain dividends
Planning Tip: Work with Your CPA
The QBID is a powerful tax tool – but also a tricky one.
Depending on your income level, business type, and structure, you may need a customized strategy to:
- Maximize the deduction
- Stay under income limits
- Optimize how you pay yourself or your team
This is not a “plug and play” deduction – it’s one you plan for.
The Bottom Line
The Qualified Business Income Deduction is a rare opportunity to reduce taxes without spending a dime.
But it requires understanding, planning, and often, a little expert guidance.
If you’re unsure whether you qualify – or how to make the most of it – now’s the perfect time to schedule a conversation.
Because smart business owners don’t just earn income – they keep more of it.
To learn more about the Qualified Business Income Deduction, visit broussardpoche.com.
About Brossard Poche
Broussard Poché, LLP is a trusted certified public accounting firm serving Lafayette, New Iberia, and Crowley, Louisiana. With decades of experience, we provide individuals and businesses with expert services in tax, audit, financial planning, and business consulting. Known for our deep client relationships and proactive approach, we’re committed to guiding clients through life’s major financial decisions while fostering a culture of collaboration, career growth, and community trust.