What is required in order to claim the Qualified Business Income deduction?

To claim the Qualified Business Income (QBI) deduction, the business must operate as a pass-through entity. This deduction is designed to benefit owners of pass-through businesses such as sole proprietorships, partnerships, S corporations, and some trusts and estates. Pass-through entities are those where the income is taxed at the individual owner's tax rate rather than the corporate tax rate, allowing for the income to "pass through" to the individual owners and be reported on their personal tax returns.

This deduction allows qualified taxpayers to deduct up to 20% of their qualified business income, which can help reduce their overall taxable income, making it a significant tax benefit for eligible small businesses. The requirement that the business must be a pass-through entity directly links to the nature of the QBI deduction, as it is not applicable to corporations that file as C corporations, and it is meant specifically to support individual taxpayers engaged in business activities.