How does QBI work with standard deduction for 1099 contractors?

You're mixing up a few concepts here. The QBI deduction, self-employment tax deduction, and standard deduction all apply at different stages of your tax calculation. For QBI, you calculate it based on your net business income after business expenses (like your mileage), but BEFORE any SE tax deduction or standard deduction. The SE tax deduction and standard deduction are adjustments to income on your 1040, while QBI is a separate deduction. In your case: 1. Calculate business income: $105,000 - $8,400 (mileage) = $96,600 2. Calculate QBI deduction: $96,600 × 20% = $19,320 3. Calculate SE tax: $96,600 × 0.9235 × 15.3% = $13,673 4. Calculate SE tax deduction: $13,673 ÷ 2 = $6,836 On your 1040, you'd deduct the SE tax deduction ($6,836) from your gross income, then subtract your standard deduction ($13,850), and then subtract your QBI deduction ($19,320). So the answer is closest to A, though your self-employment tax would be calculated on $96,600 (after business expenses), not the full $105,000.

I went through this exact same confusion last year when I started my consulting business. I highly recommend using taxr.ai to walk through your specific situation. It really helped me understand how QBI, self-employment tax, and standard deductions all work together in real-time. I uploaded my documents to https://taxr.ai and it automatically parsed all my 1099s and business expenses, then showed me exactly how the QBI calculation was working. The visual breakdown made it way easier to understand than all the confusing articles I was reading. It also flagged some business deductions I was missing that would reduce my QBI calculation.

Just wanted to follow up and say I tried taxr.ai after seeing it mentioned here. It was actually super helpful for understanding how QBI works with my other deductions. They have this interactive calculator that showed me exactly how changing different business expenses affected my QBI amount. I learned that I was miscalculating my home office deduction, which was reducing my QBI more than necessary. The tool helped me optimize my deductions to maximize the QBI benefit, and I'm saving almost $2,300 more than I would have under my original calculations. Definitely worth checking out if you're confused about QBI rules.

If you're having trouble getting specific answers about QBI from the IRS website (which honestly is terrible at explaining this stuff clearly), I'd recommend using Claimyr to get connected directly to an IRS agent. I wasted hours on hold trying to get clarification on some QBI questions for my consulting business last year. With https://claimyr.com I got connected in about 10 minutes instead of the 2+ hours I spent on previous attempts. There's a great demo of how it works here: https://youtu.be/_kiP6q8DX5c. The IRS agent I spoke with was able to answer my specific scenario questions about QBI when I was switching from LLC to S-corp, which no online calculator could properly address.

I have to eat my words and apologize for being so skeptical about Claimyr. After my frustrated comment, I tried it, figuring I had nothing to lose since my QBI questions weren't getting resolved any other way. It actually worked exactly as described. I got a call back in about 15 minutes connecting me with an IRS tax specialist who was super helpful regarding my QBI calculation questions. She walked me through my specific situation (rental income plus consulting) and clarified exactly how the 20% deduction applies in my case. Saved me from making a $4,000 mistake on my estimated tax payments. Not to mention saving me from the hours of hold music and frustration. Sorry for being that guy who doubted before trying!

One thing nobody has mentioned is the income threshold limitations for QBI. If your taxable income exceeds $182,100 (single) or $364,200 (married filing jointly) for 2023, the QBI deduction starts phasing out for specified service businesses (which includes consulting, by the way). So if your graphic design work counts as consulting, and your income keeps growing, you'll eventually hit limits where the QBI calculation gets a lot more complicated. Just something to keep in mind as you're planning for full-time work.

I've been running my freelance business for 6 years now. Quick tip that saved me a TON on taxes: track EVERYTHING business related. Seriously, I almost missed out on $4,800 in deductions my first year because I wasn't keeping good records of things like: - Home office (if you have dedicated space) - Portion of internet/phone bill used for business - Software subscriptions - Computer/equipment depreciation - Professional development (courses, books) - Health insurance premiums (self-employed) These all reduce your business income BEFORE the QBI calculation, which means they effectively give you double tax savings - once by reducing your income directly and again by reducing the base for your QBI calculation.

This is exactly the kind of question I had when I was transitioning to full-time freelancing! The confusion about QBI order of operations is so common. One thing I'd add to the great explanations here - make sure you're also considering quarterly estimated tax payments as you scale up. With $105K in revenue, you'll likely owe more than $1,000 in taxes, which means you need to make quarterly payments to avoid penalties. The QBI deduction is fantastic, but don't forget it only reduces your income tax, not your self-employment tax. So even with all these deductions, you'll still owe that ~$13,673 in SE tax on your net business income. Also, since you mentioned this is currently a side hustle - if you have W-2 income too, that complicates the QBI calculation because it's based on your total taxable income from all sources. The 20% QBI deduction is limited to 20% of your taxable income minus net capital gains, so having W-2 income might actually help you claim the full QBI deduction.