Qualified Business Income (QBI) is a significant new tax deduction that took effect in 2018 under the Tax Cuts and Jobs Act (TCJA). The deduction is 20% of the entity’s qualified business income (QBI) from a partnership, S corporation, LLC or sole proprietorship, defined as the net amount of items of income, gain, deduction, and loss with respect to the taxpayer’s trade or business.
The business must be conducted within the U.S. to qualify, and specified investment-related items are not included. QBI should provide a substantial tax benefit to individuals with “qualified business income” from a partnership, S corporation, LLC, or sole proprietorship. This income is sometimes referred to as “pass-through” income.