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How is QBI determined?

The 20 percent QBI deduction is based on qualifying business income from a sole proprietorship, partnership, S corporation, trust or estate, farm, and certain rental property. The amount of the deduction can be further limited if the taxpayer’s income exceeds the inflation-adjusted threshold established for that tax year.

While normally figured on Form 1040, the IRS has two forms to help taxpayers calculate QBI:

  • Form 8995, Qualified Business Income Deduction Simplified Computation
  • Form 8995-A, Qualified Business Income Deduction

The instructions for Forms 8995 and 8995-A explain who can claim the deduction, how to determine qualifying businesses and income, specific exclusions, and more.

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