There is a deduction in the tax code that lets self employed business owners take 20 percent of their net business income off their taxable income. Off the top. Before anyone calculates what they owe.
It is called the Qualified Business Income deduction. QBI for short. Most solo business owners have never heard of it. Not because it is complicated. Because nobody thought to tell them.
Say you are a barber, a stylist, a freelance designer, or any other solo service business. You made 70,000 dollars in net business income this year. The QBI deduction lets you take 20 percent of that, or 14,000 dollars, completely off your taxable income.
That means you only pay tax on 56,000 dollars. At a typical tax rate, that is over 3,000 dollars staying in your pocket from one deduction.
Most solo service business owners qualify for QBI. If you file a Schedule C as a sole proprietor or have a single member LLC, you likely qualify. The full 20 percent deduction is available to most self employed people whose taxable income is under certain limits, which most solo operators are well under.
There are some exceptions for what the IRS calls specified service trades and businesses, which include health, law, accounting, and consulting. Those professions face additional limits at higher income levels. But for most beauty professionals, trades, freelancers, and small service businesses, QBI is available in full.
The deduction is claimed on your tax return and most tax software will calculate it for you if you fill out your Schedule C correctly. The reason people miss it is they file taxes themselves without knowing to look, or they hand off their taxes to someone who assumes they already know.
Toozi tracks your business income and expenses by text. Clean numbers means accurate QBI. Accurate QBI means thousands of dollars staying in your pocket every year.