The addition of the QBI (Qualified Business Income) deduction for the 2018 tax year will benefit a large majority of small business owners and self employed persons. The amount of the deduction will be based on your profit, which is figured after your expenses are subtracted from your income. Generally, the credit amount is 20% of your gross profit, so if your gross profit is $10,000, your QBI deduction would be $2,000. Deductions are subtracted from your adjusted gross income before your tax is figured, so this is not dollar for dollar. The amount the deduction is worth to you would depend on your individual tax rate. For example, a $2,000 deduction for a person in the 10% bracket would save them $200, where a person in the 22% bracket would save $440 off of their total tax.
There are certain rules and restrictions to this, and not everyone will qualify. The deduction begins to decrease if your taxable income is over $157,500 for single filers or $315,000 for married persons. The deduction is completely lost for those single filers with taxable income over the $207,500 and for married persons with taxable income over $415,000. There are other rules that apply to certain types of businesses as well that I have chosen not to include as the majority, if not all of our clientele here at CMS, will not be affected by such restrictions.