How does an S corp take advantage of 20% QBI deduction?

[siddjain1]

I understand shareholders of an S corp are eligible to take the 20% QBI deduction. e.g., this. However, at the same time dividends are excluded from QBI deduction e.g., this. so then how can a shareholder of S corp take the QBI deduction since the S corp income will be distributed to the shareholder as a dividend?

[Critter-3]

S-Corps are pass thru entities ... they do NOT pay the owners dividends ... the owner's take draws and should be paying themselves wages/issue themselves a W-2. 

The K-1 passes thru the QBI information to the shareholder to report on their personal tax return ... it is not handled on the corp 1120-S. 

[siddjain1]

I don't understand. How does a S corp distribute profits to its shareholders if not through a dividend? And if dividends are excluded from QBI deduction then what gives? that is what I am trying to understand.

[Mike9241]

it doesn't. The QBI deduction is taken at the shareholder level. once you enter the k-1 info in Turbotax there will be additional questions about QBI.  The shareholder/taxpayer gets the QBI based on business income (lines 1,2, and 3 and possibly other lines like 751 recapture. distributions of S-Corp profits are irrelevant. The deduction is computed of form 8995 or 8995-A.  

[Critter-3]

@siddjain1 

If you are not understanding the basic accounting principles of an S-Corp then I highly recommend you seek local professional assistance to get educated on what you have to do for the tax return  and to get the books set up properly.

[The_revenator]

Level 20 snark. No one understood tax laws until they understood tax laws, right. Did anyone learn anything by just handing it off to someone else (who probably knows less than we think; Have you seen the tax preparer forums?)

Anyway, S Corp distribution is not considered a "dividend" by definition. C- corps give dividends.