Qualified Business Income Deduction - How to calculate

[toddleroc]

I am thoroughly confused about how the QBI is calculated. Last year Turbotax took my profit from Schedule C, subtracted the employer portion of SE taxes and my SEP IRA deductions. That number was entered on the worksheet. That number was multiplied by 20% and entered as "Qualified business income component."

Then, taxable income (AGI minus adjustments (standard deduction and Traditional IRA contributions)) was entered on the worksheet and multiplied by 20%. this number was entered as the "Income limitation."

The Qualified business income component was compared to the Income limitation. The Income limitation was lower so it was entered as my QBI

Can anyone explain what the Income limitation is and why it is used instead of the 20% of my QBI?

[Mike9241]

it's complicated because there are many things that can limit the deduction

under the tax code, IRC 199A(a), your QBI deduction is limited to the lesser of 1) the tentative QBI deduction which can be 20% of net QBI income or 2) 20% of adjusted taxable income - Taxable income before the QBI deduction  less qualified dividends and net long-term capital gains

[MarilynG1]

Click this link for a detailed article on the Qualified Business Income (QBI) Deduction and how it is calculated.