11/19/23, 8:59 PM
Intuit Academy
https://intuit.docebosaas.com/ia/learn/course/6712/play/22659/intuit-academy-tax-level-1-business-income-and-expenses-oics6722;lp=518
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or are a trust or estate, or $340,100 if married filing jointly, then in 2022 you may qualify for the 20%
deduction on your taxable business income.
Over the income limit
If taxpayers exceed the income limit, a few tests determine whether they qualify for the qualified
business income deduction. One such test is this: Is your business a "specified service trade or
business"?
If one is a doctor, lawyer, consultant, actor, a financial planner — and the list goes on — then their
business is deemed a "specified service trade or business," and many high earners in these fields
won't qualify for this tax break, because it disappears once you hit total taxable income of $220,050 if
single, and is more than $440,100 if married filing jointly.
Tests for pass-through businesses over the income limit
If your business is a “specified service trade or business” in 2022 and your income is from
$170,050 to $220,050 (single filers) or from $340,100 to $440,100 (joint filers). In that case,
there are tests to determine whether a taxpayer can claim the qualified business income
deduction and, if so, whether it'll be reduced.
The same goes if one owns a business with a pass-through income that's not a "specified trade
or business": There are tests that determine how much a taxpayer can claim of the deduction.
Specifically, the amount of a taxpayer's deduction is based on a calculation tied to the amount
of wages paid to employees (including oneself) and the value of the property the business
owns. The higher those figures, the better a taxpayer's chances of being able to qualify for the
deduction.
How the qualified business income deduction works
There are a couple of aspects of the pass-through deduction to keep in mind:
1. There are actually two 20% figures. The qualified business income deduction is worth up to
20% of taxable business income. But it's also true that when claiming this pass-through
deduction, it can't add up to more than 20% of the taxpayer's total taxable income.
Here's how it works: As usual, the taxpayer figures their business income and expenses on
Schedule C. They figure out their adjusted gross income on Form 1040. Only after that does
the taxpayer start calculating this pass-through deduction.
2. The taxpayer can claim the qualified business income deduction even if they don't itemize. If
they use the standard deduction, this deduction is still available.
