Intuit Academy Tax Practice Exam

What is true about the Qualified Business Income (QBI) deduction?

1. Qualified Business Owners can deduct up to 20% of their QBI

2. The QBI deduction is limited to $1,000

3. All self-employed individuals are eligible for 50% deduction

4. The QBI deduction is only applicable for a corporation

The correct answer is: Qualified Business Owners can deduct up to 20% of their QBI

The Qualified Business Income (QBI) deduction allows qualified business owners to deduct up to 20% of their QBI. This deduction was established under the Tax Cuts and Jobs Act to provide tax relief for pass-through entities like sole proprietorships, partnerships, and S corporations. The intent is to reduce the overall tax burden on these types of businesses, which often face a higher effective tax rate compared to traditional corporations. The QBI is defined as the net income generated from a qualified trade or business, excluding wages paid to oneself or guaranteed payments made to partners. This deduction is available to individual taxpayers, and it benefits small to medium-sized businesses substantially, assisting in promoting business growth and economic activity. In contrast, the other statements do not accurately reflect the nature of the QBI deduction. There is no cap of $1,000 on the deduction itself, and all self-employed individuals do not qualify for a 50% deduction, as eligibility is based on various income thresholds and business types. Moreover, the QBI deduction is specifically designed for individuals and pass-through entities rather than corporations.