Yes. It gets complicated when you get to the higher income levels. TurboTax uses the formulas below to determine and report your deduction. Is your business considered an SSTB (specified service trade or business)? This is important because being an SSTB reduces or eliminates the 20% Qualified Business Income (QBI) deduction at higher income levels. Qualified Business Income (QBI) is net business income, excluding:
- Income generated outside the United States
- Investment income
- W-2 compensation paid to an S corporation owner
- Guaranteed payments to a partner
- Income from REITs, publicly traded partnerships, and qualified cooperatives (these entities may qualify for a 20% deduction under a different set of rules, the explanation of which is beyond the scope of this article)
The deduction depends on the taxpayer’s total taxable income, which includes wages, interest, capital gains, etc. in addition to QBI. At higher income levels, whether the business is an SSTB will also play a role. There are 3 levels to the calculation. Without any wages paid, the Unadjusted Basis of Qualified Property will be a key number.
Under $182,100 ($364,200 if filing jointly): The calculation is straightforward—20% is applied to QBI or taxable income minus capital gains and dividends (whichever is less) to come up with the deduction. It doesn’t matter if the business is an SSTB; the QBI deduction comes out the same.
$182,100 to $232,100 ($364,200 to $464,200 if filing jointly:( Here’s where things get complicated; at this level, the deduction is reduced. You can see a detailed example in this help article. See the Reduction Ratio and how it is applied to the excess amount.
Over $232,100 (over $464,200 if filing jointly): SSTBs don’t qualify for the deduction. For non-SSTBs, the deduction is either A or B, whichever is less:
- A = 50% of the business's W-2 wages paid (or 25% of the W-2 wages paid plus 2.5% of the business's unadjusted basis in all qualified property), whichever one is the greater amount
- B = 20% of QBI
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