The QBID is available to non-corporate taxpayers, including Individuals, Trusts, and Estates.
The Sec. 199A deduction is available to non-corporate taxpayers who have qualified business income, which requires the income to be from qualified pass-through entities. Qualified pass-through entities include sole proprietorships, S corporations, partnerships, trusts, and estates.
Qualifying business income
1) Is effectively connected with the conduct of a trade or business within the U.S.
2) Is included in taxable income for the tax year
3) Comes from a flow-through entity
4) Is from core activities
Qualified business income is items of income, gain, deduction, and loss to the extent such items are effectively connected with the conduct of a trade or business within the United States; it does not include wages and foreign income.
Qualified business income does not include the following:
1) Income from Non-Core Activities
2) Capital gains and losses
3) Dividend income
4) Nonoperating interest income
5) Interest income attributable to working capital
6) Foreign currency gains
7) Income from Businesses as Reasonable Compensation
8) Salaries and wages from S corporations
9) Guaranteed payments from partnerships
The overall QBID is 20% of the lesser of
1. Qualified business income or
2. Taxable income – Net capital gains.
NOTE: Net capital gains = Net long-term capital gains – Short-term capital loss
For each qualified trade or business of a taxpayer, the deductible amount is limited to the lesser of (1) 20% of the taxpayer’s QBI with respect to the qualified trade or business or (2) the W-2 wages/qualified property limit, which is the greater of (a) 50% of the W-2 wages with respect to the qualified trade or business or (b) 25% of the W-2 wages with respect to the qualified trade or business plus 2.5% of the unadjusted basis immediately after acquisition of all qualified property.
Qualified business losses (QBLs) can only be carried forward to reduce the amount of qualified business income (QBI) in later years. Qualified business income deductions do not affect the taxpayer’s basis in the flow-through entity.