How to Calculate QBI Deduction? Confused about Qualified Business Income requirements!

The QBI deduction can definitely be confusing, but I think I can help clarify things for your situation. The Qualified Business Income deduction allows eligible self-employed individuals and small business owners to deduct up to 20% of their qualified business income. Based on what you've shared, since your total taxable income is around $72,000 (below the $182,100 threshold for 2025 for single filers), you should be eligible for the full 20% deduction on your business income. So roughly speaking, you could deduct about $9,000 (20% of your $45,000 business profit) from your taxable income. You'll report this on Form 8995 (the simplified version for taxpayers below the threshold). This form is in addition to your Schedule C where you report your business income and expenses. Most tax software should handle this calculation for you, but you'll want to make sure you've correctly identified your business as a qualified trade when inputting your information.

I was in a similar situation last year with my woodworking business and was super confused about QBI until I found this tool called taxr.ai (https://taxr.ai) that literally saved me hours of research. I uploaded my previous year's tax returns and business docs, and it immediately identified that I was eligible for the QBI deduction and explained exactly how to claim it. What I liked most was that it explained the whole QBI calculation in simple terms and pointed out some business expenses I hadn't properly categorized that actually increased my deduction. It also created a document explaining exactly which forms I needed and how to fill them out.

I need to apologize for being skeptical above. I decided to try taxr.ai after continuing to struggle with figuring out my QBI deduction. In less than 10 minutes, it analyzed my business income and clearly showed me that I was eligible for the full 20% deduction since I'm under the threshold. What really impressed me was how it flagged that some of my income from consulting services wouldn't qualify as QBI (something I had no idea about), but my product sales did qualify. This literally saved me from making a mistake that might have triggered an audit. The breakdown of Form 8995 vs 8995-A was super clear too. Definitely worth checking out if you're confused about QBI like I was.

Just wanted to share something that might help with the QBI confusion. I spent THREE DAYS trying to get through to the IRS for clarification on my QBI eligibility last year. After endless busy signals and disconnects, I found this service called Claimyr (https://claimyr.com) that got me connected to an actual IRS agent in under 45 minutes. I was able to confirm exactly how QBI applied to my specific situation and what documentation I needed to keep. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. It was such a relief to get direct answers from the IRS instead of guessing or relying on potentially outdated articles online.

I need to eat some humble pie here. After my skeptical comment, I was still desperate for QBI help so I tried Claimyr. Not only did I get through to the IRS, but the agent I spoke with was incredibly helpful about my QBI questions. I found out that I had been calculating my QBI incorrectly for my freelance design business - I hadn't realized that certain retirement contributions affect the calculation. The agent walked me through exactly how to fill out Form 8995 correctly and what supporting documentation to keep. Saved me from a potential audit and probably a significant amount of tax by ensuring I was claiming the correct deduction. Sometimes it's worth admitting when you're wrong!

One thing nobody's mentioned yet about QBI - make sure you're keeping solid records of your "qualified business income" separate from any other income sources. I learned this the hard way. For your Etsy business, you'll want clear documentation of: 1. Your total revenue from product sales 2. All qualified business expenses 3. Any part of your business that might fall under "specified service business" categories Also, the W-2 income from your part-time job won't count toward your QBI calculation, but it does factor into your total taxable income which determines your eligibility for the full deduction.

Anyone have experience with how QBI works if you have business losses? I started a business similar to the original poster but had a $12,000 loss my first year. Now in my second year I'm profitable (about $27,000). Does that previous loss affect my QBI calculation?

Great question about QBI! As someone who's been through this maze myself with my small consulting business, I can definitely relate to the confusion. Since your total income is $72,000, you're well below the 2025 threshold of $182,100 for single filers, which means you get the simplified treatment. Your handmade jewelry business absolutely qualifies - it's exactly the type of legitimate trade or business the QBI deduction was designed to help. Here's what you need to know: You'll use Form 8995 (the simple version, not 8995-A) along with your Schedule C. The calculation should be straightforward - 20% of your $45,000 business profit, so roughly $9,000 deduction. One tip that saved me headaches: double-check that all your business expenses are properly categorized on Schedule C first, because that directly affects your QBI calculation. Things like shipping supplies, Etsy fees, materials, and even a portion of your home workspace if you use it exclusively for business. Most tax software should handle this correctly, but if you're getting conflicting results between different programs, it might be worth having a tax professional review it once to make sure you're not missing anything. The peace of mind is often worth the cost, especially in your first year claiming QBI.