Should Traders Take the QBI Deduction?

If you’re a full-time trader working in the United States, you might have heard of the Qualified Business Income Deduction. This relatively new deduction has allowed certain business owners to save money on their taxes. You may be wondering if you qualify for the deduction. Here’s what you need to know:

What is the QBI?

The Qualified Business Income Deduction – also referred to as Section 199A – allows eligible taxpayers to deduct up to 20% of their qualified business income, 20% of their qualified real estate investment trust dividends and qualified publicly traded partnership income. This deduction was created by the 2017 Tax Cuts and Jobs Act.

According to the Internal Revenue Service, qualified business income is the “net amount of qualified items of income, gain deduction and loss from any qualified trade or business.” This can include partnerships, S corporations, sole proprietorships, and certain trusts.

Essentially, you are eligible for this deduction if you own what is known as a pass-through business, meaning your business is not on the hook for corporate income tax. Instead, your business reports its income on the individual tax returns of the owners and is taxed at an individual rate.

Who Doesn’t Qualify?

The list of who doesn’t qualify for this deduction is fairly extensive. Qualified business income does not include investment income, capital gains or losses, dividends, income earned from businesses outside the United States or interest income.

If your taxable income is higher than $429,800 while filing jointly or $214,900 while filing solo, you do not qualify. Additionally, any owner of a business that is a specified service trade or business can’t claim the deduction, no matter how much or little they earned in a given year. This includes, but is not limited to, the field of health, accounting, law, athletics, consulting, investment management and, yes, trading.

So, if you’re a full-time trader, don’t bother worrying about the QBI next time you file your taxes as you will not be granted the deduction. And if you need any assistance with your taxes, bookkeeping or any other accounting services in the future, Traders Accounting is here for you. Our tax professionals can help make a complicated process simple for you. Call 800-938-9513 to learn more today.