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New 20% Deduction for Small Business Owners

New 20% Deduction for Small Business Owners

Submitted by • March 6, 2020

The Tax Cuts and Jobs Act was signed into law on Dec. 22, 2017. One of the key measures provides a 20 percent deduction beginning in tax year 2018 on pass-through income from sole proprietors, limited liability companies, partnerships and S corporations.

The 20 percent deduction applies to Qualified Business Income (QBI), which includes the net amount of income, gains, deductions and losses associated with a trade or business, but not investment-related items, such as capital gains or losses, dividends and interest income. The new deduction is taken below the line, which means it reduces taxable income not adjusted gross income.

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