Understanding the QBI Deduction for S Corporations
Understanding the QBI Deduction for S Corporations The Qualified Business Income (QBI) deduction, established under the Tax Cuts and Jobs Act of 2017, offers a valuable tax benefit for eligible pass-through entities, including S Corporations. For business owners, understanding how this deduction works—and how to structure their income to qualify—can significantly reduce taxable income. However, the rules surrounding the QBI deduction are complex, and proper planning is essential to fully realize its advantages. The QBI deduction allows eligible taxpayers to deduct up to 20% of their qualified business income on their individual tax returns. For S Corporation shareholders, this deduction applies to the ordinary business income passed through from the company. It does not include wages received as an employee of the corporation or investment income such as capital gains or dividends. This means careful attention must be paid to how income is categorized and reported. One of the most crit...