Image of Tax Return with line item for Qualified Business Income Tax Deduction

The 2018 tax year was the first one in which businesses enjoyed a special tax deduction from their Qualified Business Income (QBI). So how many benefited from it?

According to Barbara Weltman at the Big Ideas for Small Business blog, 14.3 million taxpayers did. She crunched the numbers from the preliminary statistics from the IRS to figure out who used the deduction.

The QBI is viewed by some as a small business tax deduction because it applied to income taxes instead of corporate taxes. It was thus available to sole proprietors (including independent contractors), limited liability company members, partners, and S corporation shareholders.

“The QBI deduction was supposed to be a way for owners of pass-through entities to enjoy a tax rate on business income somewhat similar to the flat 21% tax rate on C corporations,” Weltman writes. “Did it work? Perhaps it’s just too early to say.”

By far, the biggest group to use the deduction was in the $100,000 to $250,000 income range; 4.4 million businesses deducted over $22 million. The second biggest group was in the second lowest income range, $30,000 to $50,000 per year, but they only deducted $4.8 million.

Weltman notes that the number of owners claiming the QBI deduction is far lower than the total number of owners of pass-through entities. She speculates that either businesses were not aware of the new deduction or that they made too much money in their enterprise to qualify.

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