As a business owner who is focused on your bottom line, you are likely always looking for additional deductions to your taxable income. The Internal Revenue Code provides for a simple reduction of income for a qualified business. The Qualified Business Income (QBI) deduction, also known as Section 199A, allows owners of pass-through entities to claim a tax deduction worth up to 20% of their QBI. A pass-through entity can be a sole proprietorship, partnership, LLC, or S corporation. For a definition of “pass-through,” see our previous article. QBI is, broadly speaking, a business’s net profit, with a few exceptions.

The QBI deduction has two components. First, the QBI component of the deduction equals twenty percent of QBI from a qualified business. Depending on the owner’s taxable income, the QBI component is subject to certain limitations. The QBI deduction has a threshold determination for 2023. If an owner’s total taxable income — that is, not just business income but other income as well — is at or below $182,100 for single filers or $364,200 for joint filers, the owner may qualify for the 20% deduction on their taxable business income.