How It Works

The deduction is still available to owners of pass-through entities – such as S corporations, partnerships and limited liability companies – as well as self-employed individuals. But it is scheduled to expire after 2025 unless Congress acts to extend it.

The maximum deduction is equal to 20% of QBI. Generally, QBI refers to your net profit, excluding capital gains and losses, dividends and interest income, employee compensation and guaranteed payments to partners. The deduction can be claimed whether or not you itemize.

Notably, the QBI deduction is subject to a phaseout based on your income. If your total taxable income is below the lowest threshold, you may be entitled to the full 20% deduction, although other limitations do apply:

• For 2023, the thresholds are $182,100 for single filers and $364,200 for joint filers.
• For 2024, the thresholds are $191,950 for single filers and $383,900 for joint filers.

But things get tricky if your income exceeds the applicable threshold. In that case, your ability to claim the QBI deduction depends on the nature of your business.

Specifically, the rules are different for regular business owners of pass-through entities, sole proprietors and those who are in “specified service trades or businesses” (SSTBs). This covers most businesspeople who provide personal services to the public, such as physicians, attorneys, financial planners and accountants. (Engineers and architects are excluded.) Professionals in this group forfeit the QBI deduction entirely if income exceeds another set of limits:

• For 2023, these upper limits are $232,100 for single filers and $464,200 for joint filers.
• For 2024, these upper limits are $241,950 for single filers and $483,900 for joint filers.

If your income falls between the thresholds stated above, your QBI deduction may be reduced, regardless of whether you’re in an SSTB or not. For taxpayers who are in SSTBs, the deduction is phased out until it disappears at the upper income threshold. For other taxpayers, the deduction is limited to the lesser of 20% of QBI or the greater of 1) 50% of the wages paid to employees on W-2s, or 2) 25% of wages plus 2.5% of the unadjusted basis of the qualified property owned by the business.

Available for a Limited Time

The QBI deduction provides a valuable tax break for small business owners, so if it expires, their taxes are likely to go up. It’s unclear at this time what the chance is of the deduction being extended. Contact the office for guidance in determining the best strategy for your personal situation.

Individuals: Pay the fourth installment of 2023 estimated taxes (Form 1040-ES) if not paying income tax through withholding or not paying sufficient income tax through withholding.

Employers: Deposit Social Security, Medicare and withheld income taxes for December 2023 if the monthly deposit rule applies.

Employers: Deposit nonpayroll withheld income tax for December 2023 if the monthly deposit rule applies.

January 31

Individuals: File a 2023 income tax return (Form 1040 or Form 1040-SR) and pay tax due in order to avoid penalties for underpaying the January 16 installment of estimated taxes.

Businesses: Provide Form 1098, Form 1099-MISC (except for those that have a February 15 deadline), Form 1099-NEC and Form W-2G to recipients.

Employers: Provide 2023 Form W-2 to employees.

Employers: Report Social Security and Medicare taxes and income tax withholding for fourth quarter 2023 (Form 941) if all of the associated taxes due weren’t deposited on time and in full.

Employers: File a 2023 return for federal unemployment taxes (Form 940) and pay any tax due if all of the associated taxes due weren’t deposited on time and in full.

Employers: File 2023 Form W-2 (Copy A) and transmittal Form W-3 with the Social Security Administration.

February 12

Individuals: Report January tip income of $20 or more to employers (Form 4070).

Employers: Report Social Security and Medicare taxes and income tax withholding for fourth quarter 2023 (Form 941) if all associated taxes due were deposited on time and in full.

Employers: File a 2023 return for federal unemployment taxes (Form 940) if all associated taxes due were deposited on time and in full.