The QBI deduction is a tax benefit for self-employed and small-business owners who have pass-through income. It allows them to deduct up to 20% of their qualified business income (QBI) from their taxable income. QBI is the net profit of a business, excluding certain items such as capital gains, dividends, interest income, and wages.
To calculate the QBI deduction in Excel, you need to follow these steps:
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- In cell A1, enter your total taxable income, including QBI.
- In cell A2, enter the net profit from your qualified business.
- Enter the QBI deduction threshold for your filing status in cell A3. The threshold is $170,050 for single filers.
- Enter the formula =IF(A1<=A3,A2*0.2,0) in cell A4.
This formula will calculate your QBI deduction if your total taxable income is below or equal to the threshold. If your total taxable income is above the threshold, your QBI deduction may be limited or phased out depending on the type of your business and other factors.
The result in cell A4 is your QBI deduction amount. You can use this amount to reduce your taxable income on your tax return.
If your total taxable income exceeds the threshold, calculating the QBI deduction may require additional steps for phase-out adjustments, particularly if you’re in a Specified Service Trade or Business (SSTB) or meet other limiting factors. For simplicity, the formula provided here works for cases where income is below or at the threshold, but more complex formulas can be created for phase-out scenarios.
