How Do I Claim the Qualified Business Income Deduction (QBID)?

The Qualified Business Income Deduction (QBID) allows many self-employed individuals, independent contractors, freelancers, and small business owners to deduct up to 20% of their qualified business income (QBI), subject to income limits and other IRS rules.

Qualified business income generally includes the net income, gain, deduction, and loss from a qualified trade or business conducted in the United States. Only items that are included in taxable income and connected to the business are considered when calculating QBI.

What Income Qualifies for QBID?

Qualified business income may include:
  • Net profit from a sole proprietorship reported on Schedule C
  • Qualified income from partnerships
  • Qualified income from S corporations
  • Certain income from rental activities that qualify as a trade or business
Generally, the income must be effectively connected with a U.S. trade or business and included in your taxable income.

What Income Does Not Qualify?

Some types of income are specifically excluded from the QBID calculation, including:
  • Capital gains and capital losses
  • Dividend income
  • Interest income not connected to the business
  • Wage income reported on Form W-2
  • Certain foreign income
  • Annuity income not related to a trade or business
Because these items are excluded, they won't increase the amount of your Qualified Business Income Deduction.

Do I Need to Calculate the QBID Myself?

The program automatically calculates your Qualified Business Income Deduction based on the business income reported in your return.

As you enter income and expenses for your business activities, the program determines whether you qualify for the deduction and calculates the allowable amount based on current IRS rules.

How the Deduction Works

The QBID is claimed as a deduction on your individual income tax return. It reduces your taxable income but does not reduce:
  • Self-employment income
  • Self-employment tax
  • Net business profit reported on Schedule C
Instead, the deduction is applied after your income is calculated and before your income tax is determined. This means the QBID can lower your federal income tax, but it does not reduce your self-employment tax.

What Information Should I Enter?

To claim the QBID, simply complete your return as usual and accurately report:
  • Business income
  • Business expenses
  • Schedule C information
  • Partnership or S corporation information (if applicable)
The program will use this information to calculate your deduction automatically.

Review Your Return

After completing your return, review your forms and worksheets to verify that:
  • Your business income was entered correctly.
  • All eligible business expenses were reported.
  • The Qualified Business Income Deduction appears on your return, if you're eligible.
Because eligibility and calculation rules can vary based on income level and business type, the deduction amount may be less than the full 20% in some situations.

Additional Information

Please review these Knowledgebase articles for additional information here:

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While TaxSlayer strives to make the information and links contained in our KB articles as timely and accurate as possible, we make no promise or guarantee about the timeliness, accuracy, or completeness of the contents on these pages. The information contained in the Knowledgebase (KB) is for general information only and is not intended to be tax, financial, or legal advice. The user is encouraged to review additional state and federal resources and publications as needed.

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