Qualified Business Income (QBI) Deduction Calculator
Your estimated QBI Deduction is: $0.00
Understanding the Qualified Business Income (QBI) Deduction
The Qualified Business Income (QBI) deduction, also known as the Section 199A deduction, is a significant tax benefit for owners of pass-through businesses, including sole proprietorships, partnerships, and S corporations. Introduced by the Tax Cuts and Jobs Act of 2017, it allows eligible taxpayers to deduct up to 20% of their qualified business income. This calculator helps estimate your potential QBI deduction.
How the QBI Deduction Works
The QBI deduction is generally the lesser of:
20% of your qualified business income (QBI).
20% of your taxable income before the QBI deduction, reduced by net capital gain.
For taxpayers whose taxable income before the QBI deduction is below a certain threshold (for 2023, this is $182,100 for single filers and $364,200 for married filing jointly), the deduction is typically limited to the lesser of the two amounts mentioned above.
For taxpayers whose taxable income exceeds these thresholds, the deduction may be further limited based on the amount of W-2 wages paid by the qualified business and the unadjusted basis immediately after acquisition (UBIA) of qualified property held by the business. In these cases, the deduction is the lesser of:
The sum of:
20% of QBI
The greater of:
50% of W-2 wages paid
25% of W-2 wages paid plus 2.5% of the UBIA of qualified property
20% of taxable income before the QBI deduction, reduced by net capital gain.
Note: For tax years beginning after December 31, 2025, the W-2 wage and UBIA limitations will be removed. However, this calculator incorporates the limitations for tax years where they apply.
Key Terms:
Qualified Business Income (QBI): This is the net amount of income, gain, deduction, and loss from any qualified trade or business. It generally excludes items like investment income, amounts paid to a taxpayer as an employee, or guaranteed payments from a partnership.
Taxable Income Before QBI Deduction: This is your adjusted gross income (AGI) minus certain deductions (but before the QBI deduction itself and before considering net capital gain).
W-2 Wages: These are generally the amounts reported in box 1 of Form W-2 for employees of the qualified business.
Unadjusted Basis Immediately After Acquisition (UBIA) of Qualified Property: This refers to the original cost of qualified property (like machinery or equipment) placed in service by the business, unadjusted for depreciation.
Who Qualifies for the QBI Deduction?
Generally, owners of pass-through entities that operate a trade or business within the United States can claim the QBI deduction, provided they meet certain income and service business limitations. Specified Service or Investment Trades or Businesses (SSTBs) have different rules and limitations, especially as taxable income rises. This calculator focuses on the core calculation and wage/property limitations.
Disclaimer:
This calculator provides an estimated QBI deduction based on the information you provide. It is for informational purposes only and does not constitute tax advice. Tax laws are complex and subject to change. Consult with a qualified tax professional for personalized advice regarding your specific tax situation.
function calculateQBIDeduction() {
var taxableIncome = parseFloat(document.getElementById("taxableIncome").value);
var qualifiedBusinessIncome = parseFloat(document.getElementById("qualifiedBusinessIncome").value);
var w2Wages = parseFloat(document.getElementById("w2Wages").value);
var unadjustedBasis = parseFloat(document.getElementById("unadjustedBasis").value);
var resultElement = document.getElementById("result").querySelector("span");
resultElement.textContent = "$0.00"; // Reset to default
// Validate inputs
if (isNaN(taxableIncome) || isNaN(qualifiedBusinessIncome) || isNaN(w2Wages) || isNaN(unadjustedBasis)) {
alert("Please enter valid numbers for all fields.");
return;
}
// For simplicity in this calculator, we'll assume taxable income before QBI is the same as taxable income before net capital gain.
// A more complex calculator would require net capital gain as a separate input.
var taxableIncomeBeforeQBI = taxableIncome;
// Define income thresholds for 2023 (these would need to be updated annually)
var singleFilerThreshold = 182100;
var marriedFilingJointlyThreshold = 364200;
var phaseInThreshold = 50000; // For single
var phaseInThresholdMFJ = 100000; // For married filing jointly
// Placeholder for determining filing status and thus which threshold applies.
// For this calculator, we'll demonstrate the calculation as if income is above the threshold
// and thus wage/UBIA limitations might apply if applicable to the taxpayer's situation.
// In a real-world scenario, you'd need filing status. We'll simplify by using a blended approach for demo.
var qbiDeduction = 0;
var qbiLimit1 = 0.20 * qualifiedBusinessIncome;
var qbiLimit2 = 0.20 * taxableIncomeBeforeQBI;
var preliminaryDeduction = Math.min(qbiLimit1, qbiLimit2);
// — Simplified wage and UBIA limitation calculation (applies if taxable income is above threshold) —
// This part assumes the taxpayer is above the threshold where limitations start.
// A more accurate calc would factor in the phase-in range.
var wageLimitation = 0;
var wageComponent = 0.50 * w2Wages;
var propertyComponent = 0.25 * w2Wages + 0.025 * unadjustedBasis;
// The actual limitation calculation involves the phase-in range, which is complex.
// For simplicity here, we'll directly compare the preliminary deduction to the wage/property limits
// if income is above the threshold.
// We are going to simplify this significantly for the calculator's scope and assume the wage/property limits
// are what we're comparing against the 20% QBI if income is sufficiently high.
// A true calculation requires knowing if it's an SSTB and where the income falls relative to thresholds.
// Let's assume for demonstration purposes, if income exceeds the lower threshold,
// the deduction is limited by the GREATER of (50% wages) or (25% wages + 2.5% UBIA).
// This is a simplification of the actual complex calculation.
var thresholdForLimitation = marriedFilingJointlyThreshold; // Use MFJ as a higher general benchmark for complexity
if (taxableIncomeBeforeQBI > thresholdForLimitation) {
wageLimitation = Math.max(wageComponent, propertyComponent);
qbiDeduction = Math.min(preliminaryDeduction, wageLimitation);
} else {
// If below the threshold, the deduction is generally preliminaryDeduction
qbiDeduction = preliminaryDeduction;
}
// Ensure deduction doesn't exceed 20% of taxable income before QBI
qbiDeduction = Math.min(qbiDeduction, qbiLimit2);
// Ensure deduction is not negative
qbiDeduction = Math.max(0, qbiDeduction);
// Format the result
var formattedDeduction = qbiDeduction.toFixed(2);
resultElement.textContent = "$" + formattedDeduction;
}