QBI stands for Qualified Business Income. QBI is determined by calculating your total business income minus:
- wage (W-2) income; with the exception of statutory employees
- capital gains and losses
- dividends or interest
- annuity payments
- foreign currency gains or losses
- reasonable compensation for owner/employees of S-Corps
- guaranteed payments to partnerships and LLCs
If you are self-employed and your business qualifies as a pass-through entity, the Tax Cuts and Jobs Act says you may deduct up to 20% of your QBI on your federal income tax return. This is known as the pass-through entity deduction. Learn more about the pass-through entity deduction here.