Page 196 - Small Business IRS Training Guides

Qualified Business Income Deduction
HOW TO FIGURE THE DEDUCTION (CONTINUED)

QBI COMPONENT

The QBI Component is generally the net amount of 20 percent of QBI from each QTB

engaged in by the taxpayer. However, if the taxpayer’s taxable income, before the QBI

deduction, exceeds the threshold amount, the 20 percent of QBI for each trade or

business may be partially or fully reduced to the greater of 50 percent of wages from the

QTB, or 25 percent of wages plus 2.5 percent of the UBIA of qualified property from the

QTB. In applying the reduction, taxpayers with an ownership in a pass-through entity

only take into account their allocable share of W-2 wages and UBIA of qualified property
as reported to them by the through pass-through entity. See Reductions to the QBI
Component.

In addition, if the taxpayer is a patron of a specified agricultural or horticultural

cooperative and the QBI Component includes a qualified payment from the specified

agricultural or horticultural cooperative, the taxpayer’s QBI deduction related to that

QTB must be reduced by the lesser of:

• 9 percent of the QBI allocable to the qualified payment, or

• 50 percent of W-2 wages from the trade or business of the taxpayer that is

allocable to the qualified payment.
Qualified Trades or Businesses

Qualified trades and businesses include IRC § 162 trades or businesses, other than

trades or businesses conducted through a C corporation, trade or business of

performing services as an employee, and for taxpayers with taxable income above the
threshold and phase-in range, specified service trades or businesses.

In general, an activity qualifies as a trade or business if the primary purpose for

engaging in the activity is for income or profit and the activity is conducted with
If

continuity and regularity. the taxpayer owns an interest in a pass-through entity, the

trade or business determination is made at that entity's level. For purposes of IRC
§ 199A, the taxpayer is not required to materially participate in the activity.

May 2019

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