Qualified Business Income Deduction

[dcschneider65]

My gross self employment income for 2021 will exceed the QBI Deduction limit of $164,900 for 2021.  I am a calendar year filer.  I file a joint return with my wife who earns in the $150-170K range.  I do not currently have a SEP in place, but believe that I can contribute up to the lesser of $58K or 25% of my income, which will be about $190K this year.  So, if I open a SEP and contribute ($190K * 25% = $47,500), will this SEP contribution reduce my taxable income below the threshold for me to qualify for the QBI Deduction?  $190K - 47.5K = 142.5K which is under the $164.9K QBI threshold.

[Anonymous · Accepted solution]

In 2021, the total taxable income must remain below $164,900 for single filers and $329,800 for joint filers. Taxable income is calculated after deducting SEP contributions, standard ($25,100)/itemized deductions, one half of the SE tax deduction and any other deductions. From the information you have provided, the joint taxable income of you and your wife will stay under $329,800 making you eligible for QBI Deduction.

Calculations with the figures you have provided:

Taxable income = 170,000 +190,000 - 14,535 (half of SE tax) - 47,500 (SEP contribution) - 25,100 (standard deduction)= $272,865 which is less than the threshold for a married filing joint return.

So you will be able to claim the Qualified Business Income Deduction.

Qualified Business Income Deduction (QBI): What It Is & Who Qualifies

[Mike9241]

QBI is calculated on net S-E income and after deducting 1/2 the self-employment taxes, contributions to your retirement plan, and the self-employed health insurance deduction.