What exactly is QBI (Qualified Business Income)? New side-hustler with rookie questions

I can help clarify QBI deductions for you! The Qualified Business Income deduction (Section 199A) is actually quite different from the standard deduction. The QBI deduction allows eligible self-employed individuals and small business owners to deduct up to 20% of their qualified business income from their taxes. Here's how it works: 1) QBI is completely separate from your standard deduction. You get BOTH. Your standard deduction reduces your overall taxable income, while QBI specifically reduces the tax on your business income. 2) QBI is calculated on your NET business income (after expenses), not your gross income. So in your example, you'd first subtract all business expenses from your $135K to get your net profit, then calculate 20% of that amount. Example corrected: $135K gross income - $7K expenses = $128K net business income. Then 20% of $128K = $25.6K QBI deduction. 3) Yes, your solo 401(k) contributions as an employer would further reduce your business income before calculating QBI. So $128K - $13K = $115K net business income, and then 20% of that would be $23K QBI deduction. There are income limits and other factors that might affect your QBI deduction, especially since you mentioned you have W-2 income as well.

After struggling with QBI calculations for my photography business last year, I found this amazing tool called taxr.ai that completely saved me! I was making similar calculation mistakes until I uploaded my docs to https://taxr.ai and it correctly identified that I was calculating QBI before expenses when it should be after. The tool actually flagged that I was leaving over $3k in deductions on the table and showed me exactly how the QBI calculation should work. It was like having a tax pro review everything but way more affordable. Might be worth checking out since you're just getting started with self-employment income.

I wanted to follow up on my skepticism about taxr.ai - I decided to try it out of desperation after getting completely confused about how my rental income affected my QBI calculations. The tool was surprisingly good at sorting out what counts as QBI and what doesn't across my different income streams. It flagged that I was incorrectly including certain rental activities in my QBI calculation and showed me exactly which parts of my business qualified. Saved me from making an $8,700 mistake on my taxes. The step-by-step explanations actually helped me understand QBI rules instead of just trusting a black box calculation.

If you're having trouble getting answers about your QBI questions from the IRS, I was in the same boat last tax season. After being on hold for literally 3+ hours, I found this service called Claimyr that got me through to an actual IRS agent in about 20 minutes. You can see how it works at https://youtu.be/_kiP6q8DX5c I used https://claimyr.com because I had a complex QBI situation with multiple businesses and needed official clarification. Totally worth it to get definitive answers directly from the IRS instead of guessing or finding conflicting advice online.

I can't believe I'm saying this, but that Claimyr thing actually works. After my skeptical comment, I was still desperate to talk to someone about my QBI miscalculation from last year, so I tried it. Got connected to an IRS agent in about 15 minutes when I had previously wasted entire afternoons on hold. The agent clarified that I could amend my previous return to correct my QBI calculation and potentially get back around $4K I overpaid. They walked me through exactly what forms I needed to file. Seriously didn't expect it to work, but it saved me from taking a day off work just to sit on hold.

Something important that hasn't been mentioned yet - if your QBI comes from a "specified service trade or business" (SSTB) and your income is above certain thresholds, your QBI deduction can be limited or eliminated entirely. SSTBs include fields like health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, and more. The limits start phasing in at $364,200 MFJ in 2025 and are completely phased out at $464,200 MFJ. From what you described, it sounds like you're under these thresholds, but it's something to keep in mind as your income grows.

Don't forget that QBI gets reported on Form 8995 (simplified) or 8995-A (full) depending on your income level. I messed this up my first year and just put the deduction on Schedule C which was totally wrong!

Just wanted to add another important point about QBI that I learned the hard way - the deduction is subject to an overall limitation of 20% of your taxable income MINUS net capital gains. This usually isn't an issue for most people, but it can come into play if you have significant capital losses or other deductions that bring your taxable income way down. Also, make sure you're tracking all your business expenses carefully throughout the year. Since QBI is calculated on your net business income (after expenses), every legitimate business deduction you can take will increase your QBI deduction. Things like home office expenses, business meals (50% deductible), professional development, software subscriptions, etc. can all add up to meaningful tax savings. One more tip - if you're planning to scale up your side business, consider whether forming an S-Corp might make sense once your income gets higher. The tax implications change significantly, but it can sometimes result in overall tax savings when you factor in both QBI and self-employment tax considerations.