What is the QBI deduction, and do creators qualify?
Short answer
The qualified business income deduction lets many self-employed people deduct up to 20% of their business profit, and most creators qualify, though the deduction can shrink at higher incomes depending on the type of business.
Otavio Mayole, Co-founder, DeCypher FinancialsUpdated
How it works:
- It's calculated on your business profit, after expenses.
- You get it whether or not you itemize.
- It lowers your income tax, not your self-employment tax.
Where it gets complicated:
- Higher incomes. Above certain income levels, the deduction can be limited, especially for businesses based on performing or on the owner's personal skill or reputation. Whether a creator business falls into that group depends on how it makes money.
- S-Corps. Your salary isn't counted. The deduction is based on profit after your salary, which is one reason salary-setting matters.
- Switching structures mid-year can change how much you get.
For most creators under the income limits, it's a straightforward 20% deduction, and it shows up on almost every return we prepare.