Question

QBI Deduction

Forum|Forum|4 years ago
April 12, 2022
1 reply
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I receive a 1099 NEC for compensation provided for serving on a Board of Directors. It is not one-off as I have served regularly on the Board since 2020. TurboTax is forcing me to create a business to account for this 1099 NEC. It then asks the question if income from the business is Qualifed Business Income. I believe it is because I operate the business in the US and I never worked as a W2 employee for the company that is paying me. Is there a way to confirm if income from serving on this board is QBI?

ColeenD3

It sounds like it is.

The Qualified Business Income deduction (also called the QBI deduction, pass-through deduction, or section 199A deduction) was created by the 2017 Tax Cuts and Jobs Act (TCJA) and is in effect for tax years 2018 through 2025.

With the QBI deduction, most self-employed taxpayers and small business owners can exclude up to 20% of their qualified business income from federal income tax (but not self-employment tax) whether they itemize or not.

The deduction amount depends on the taxpayer's total taxable income, which includes wages, interest, capital gains (etc.) in addition to income generated by the business. Once the taxable income reaches or exceeds $164,900 ($329,800 if filing jointly), the type of business also comes into play.

At incomes below that level, the deduction is 20% of either taxable income (minus capital gains and dividends) or the QBI, whichever is less.

At higher income levels, the deduction is reduced or eliminated, depending on the nature of the business. The calculations also get quite complicated, but TurboTax easily handles them and will figure out how much of a deduction you’re entitled to.