Under the Tax Cuts and Jobs Act, small businesses that are pass-through entities may deduct up to 20% of qualified business income on their federal income tax return. For small business owners in specified service trades, the deduction begins to phase out when income is over $160,700 for a single filer ($321,400 for joint filers).
What is Qualified Business Income? - Qualified business income is your total business income minus capital gains or losses, dividends or interest, annuity payments, foreign currency gains or losses, reasonable compensation, and guaranteed payments.
What is a Pass-Through Entity? - Sole Proprietorships, LLCs, S-Corps, and partnerships are known as pass-through entities because income is essentially "passing through" the business to the owner, who claims it on their personal tax return. The business income is then taxed at the owner’s individual income tax rate.
What is a specified service business? - Specified service businesses are entities that rely on the specific skills of the business owner or employee. For example, law firms, medical practices, consulting firm, financial service providers, artists, and professional athletes are all considered specified service businesses.
How is the deduction calculated? - The deduction is automatically calculated within your account when your business income is entered into the program.
Where do I enter my business income? - Depending on the business, your income that qualifies for the QBID may be on your Schedule C, Schedule E, K-1 or your 1099-DIV form.
- To enter the Schedule C- go to the Federal Section > Income > Profit or Loss from a Business
- To enter the Schedule E- go to the Federal Section > Income > Rents and Royalties
- To enter the K-1- go to the Federal Section > Income > Other Income > K-1 Earnings
- To enter the Section 199A Dividends- go to the Federal Section > Income > Interest and Dividends > Interest or Dividend Income > Dividend Income