For 2021, the threshold for claiming 20% of qualified business income is $164,900 for single filers or $329,800 for married filing jointly. If your income is greater than these thresholds, the business deduction becomes 20% of your net qualified business income OR 50% of total wages paid to employees, whichever is less.
What if I own a specified service business?
If you are in a specified service business, the deduction begins to phase out when your income reaches $164,900 for singles and $329,800 for married filing jointly. The 20% deduction is reduced to $0 when you earn $213,300 for individuals and $426,600 if married filing jointly.
The IRS defines a "specified service trade or business" as something which involves businesses in the fields of:
- Actuarial science
- Performing arts
- Financial services
- Investing management