What is the QBI deduction, and secondly, what is all the hoopla about it? The QBI deduction, also referred to as Section 199A (the section of the Internal Revenue Code), allows eligible taxpayers to deduct up to 20% of their qualified business income, plus 20% of qualified real estate investment trust dividends (REIT) and qualified publicly traded partnership (PTP) income. Income earned through a C-corporation or by providing services as an employee is not eligible for the deduction.

Regardless of whether a taxpayer itemizes or claims the standard deduction, the deduction can be claimed by eligible taxpayers. There are two components to the QBI deduction: the QBI component and the REIT component. The deduction is limited to the lesser of the QBI component plus the REIT/PTP component or 20% of the taxable income minus net capital gain. In general, the QBI is the net amount of qualified items of income, gain, deduction and loss from any qualified trade or business, including income from S-corporations, partnerships, sole proprietorships and certain trusts. Generally, this includes, but is not limited to, the deductible part of self-employment tax, self-employed health insurance, and deductions for contributions to qualified retirement plans (SEP, Simple, and qualified plan deductions).

It has been said by some tax professionals that the figuring the QBI deduction has been the most confusing change of the Tax Cuts and Jobs Act. As this may be the case, no need to fret, because there are now QBI calculators and other resources that can assist with figuring the QBI deduction and providing additional guidance and assistance.