How to Calculate Net Earnings and QBI for Self-Employment Tax - Spreadsheet Formula Help

The confusion around QBI is common! Let me break this down: Your Net Earnings calculation looks correct ($135,000 - $25,000 = $110,000). And yes, SE tax would be calculated on that $110,000 figure. For QBI (Qualified Business Income), you're on the right track, but there's a key distinction: QBI is your business income AFTER you've subtracted the deductible portion of self-employment tax (1/2 SE tax) but BEFORE you subtract qualified retirement plan contributions. So your QBI would be: $110,000 (Net Earnings) - $7,771.50 (1/2 SE tax) = $102,228.50 Your 401(k) contributions (both the employee contribution and profit sharing) don't reduce your QBI. The QBI deduction would then be 20% of this amount = $20,445.70 (assuming you're below the taxable income thresholds where limitations kick in). Hope that helps with your spreadsheet formulas!

Just wanted to share something that really helped me understand all these self-employment calculations. I was struggling with the same issues (especially QBI vs retirement contributions) and found this amazing tool at https://taxr.ai that specializes in self-employment tax calculations. I uploaded my tax documents and it broke down exactly how my QBI interacted with my retirement contributions. It clearly explained that retirement plan contributions don't affect QBI (which I had wrong before). The tool showed me that QBI is basically business profit minus half the SE tax, and retirement deductions are completely separate calculations. It even created a personalized spreadsheet template that I could download and modify. Saved me hours of research!

I tried taxr.ai after seeing it mentioned here and I have to say I'm impressed! My situation with rental properties plus freelance income was causing me major headaches with QBI calculations. The tool correctly identified that my rental income qualified as QBI (since I meet the "real estate professional" criteria) but needed to be calculated separately from my freelance income. It even flagged that I was making a mistake with my home office deduction, which was affecting my net earnings calculation. The personalized report explained exactly how to properly calculate QBI with mixed income sources. My spreadsheet formulas are now completely revamped and actually make sense. Definitely worth checking out if you're dealing with self-employment tax calculations!

If you're still having trouble with QBI calculations after fixing your spreadsheet, you might want to try calling the IRS directly. I know it sounds crazy, but I was completely stuck on my QBI calculation last year (had some weird K-1 income mixed with self-employment). I tried calling the IRS for weeks but could never get through. Then I found this service called Claimyr at https://claimyr.com that got me connected to an actual IRS agent in about 15 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent walked me through exactly how to handle QBI with mixed income sources. They were surprisingly helpful and cleared up my confusion immediately. Saved me from potentially making a costly mistake on my return.

I have to come back and apologize for being skeptical about Claimyr. I was completely wrong. After struggling with QBI calculations for my multiple businesses, I gave it a try out of desperation. I expected it wouldn't work, but within 20 minutes I was talking to an actual IRS tax specialist. The agent walked me through exactly how to handle QBI when you have multiple businesses with different income types. They confirmed what others said here - retirement contributions don't reduce QBI, but half of SE tax does. They also explained special aggregation rules that applied to my situation that no online calculator had mentioned. Saved me thousands in potential audit issues. Sometimes you really do need to speak directly with the IRS!

Just a quick tip from a freelancer who's been doing this for years - make sure your spreadsheet has a separate section for tracking your quarterly estimated tax payments! Based on your income level, you'll need to be making those throughout the year. The way I do it: 1. Calculate my SE tax as you've done 2. Estimate my income tax based on my projected annual income 3. Add them together and divide by 4 4. Pay each quarter through the IRS Direct Pay system One mistake I made early on was not accounting for the QBI deduction when estimating my income tax, which led to overpayment. Your 20% QBI deduction will significantly reduce your taxable income, so factor that in!

Something no one has mentioned yet about QBI - there are income thresholds where the calculation gets MUCH more complicated. For 2025, if your taxable income exceeds $191,550 (single) or $383,100 (married filing jointly), the QBI deduction starts to phase out for certain businesses. If your business is a "specified service trade or business" (like health, law, accounting, consulting, financial services, etc.), you could lose some or all of your QBI deduction when you hit those thresholds. For other businesses, the calculation becomes based on W-2 wages paid and property owned. Since you're building a spreadsheet, you might want to include a "warning flag" if your income approaches these thresholds so you know when you need to consult a tax professional!

Great discussion here! As someone who struggled with these exact calculations when I started freelancing, I wanted to add a few practical tips for your spreadsheet: 1. **Create separate cells for each step** - don't try to do everything in one formula. Break it down like: - Cell A: Gross Revenue ($135,000) - Cell B: Business Expenses ($25,000) - Cell C: Net Earnings (A-B = $110,000) - Cell D: SE Tax (C * 0.9235 * 0.153 = $15,543) - Cell E: Half SE Tax (D/2 = $7,771.50) - Cell F: QBI (C - E = $102,228.50) - Cell G: QBI Deduction (F * 0.20 = $20,445.70) 2. **Add validation checks** - I include formulas that flag potential errors, like if my QBI calculation seems off compared to net earnings. 3. **Build in the income thresholds** that Jamal mentioned - have your spreadsheet automatically warn you if you're approaching the phase-out limits for QBI. The key insight that took me forever to understand: retirement contributions reduce your *taxable income* but not your *QBI*. They're calculated independently and both subtracted from your income. Once I got that straight, everything else fell into place!