Jane Dotson
The Qualified Business Income (QBI) deduction is a tax benefit that allows eligible business owners to deduct up to 20% of their QBI from their taxable income. To qualify for the QBI deduction, an individual must be involved in a qualified trade or business, which includes sole proprietorships, partnerships, S corporations, and certain trusts. While the QBI deduction is available to a wide range of industries, there are certain exclusions, and the insurance industry falls into a grey area. Insurance agents and brokers are not considered to be conducting specified service businesses, and therefore may not qualify for the QBI deduction. However, there are certain scenarios where insurance businesses may be able to qualify, such as by separating their insurance income and expenses from other lines of business.
| Characteristics | Values |
|---|---|
| Who qualifies for QBI? | Owners of sole proprietorships, partnerships, S corporations, and some trusts and estates |
| Who does not qualify for QBI? | Real estate agents and brokers, insurance agents and brokers, and service providers |
| What is QBI? | 20% deduction on qualified business income |
| What does QBI include? | Self-employment tax, self-employed health insurance, and deductions for contributions to qualified retirement plans |
| How to qualify for QBI? | Reduce taxable income by bunching income, contributing to a retirement plan, contributing to a health savings account, making charitable contributions, and choosing married filing separate |
| How does QBI affect insurance agents? | Insurance agents do not qualify for QBI, but hybrid insurance producers might qualify if they separate their business lines |
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What You'll Learn
Insurance agents are not conducting specified service businesses
The Tax Cuts and Jobs Act introduced a new deduction to offset "qualified business income" (QBI) and reduce the tax burden of business owners. However, insurance agents are not considered to be conducting specified service businesses (SSTB). This is because they are treated as being in the business of selling company products rather than their personal services.
This exclusion of insurance agents from the SSTB definition is notable because businesses in the financial services industry, including brokerage services, are typically included. While insurance agents are not considered SSTBs, they may still be able to qualify for the QBI deduction. This is possible if they structure their business in a certain way. For example, by separating their insurance business from any other lines of business they may operate in, such as investment advisory or brokerage services.
However, this approach adds complexity and may not be worth it unless there are substantial insurance commissions involved. Additionally, high-income individuals may not benefit from this strategy, as the QBI deduction is eliminated for them.
Overall, while insurance agents are not considered SSTBs, the complexity of tax regulations and the potential for high added expenses means that seeking professional advice is advisable.
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Insurance agents can qualify for the 199A QBI deduction
The Qualified Business Income (QBI) deduction is a tax benefit that allows eligible taxpayers to deduct up to 20% of their QBI, plus 20% of qualified REIT dividends and qualified PTP income. This deduction is available for tax years beginning after December 31, 2017, and is also known as the Section 199A deduction.
QBI refers to the net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business. This includes income from partnerships, S corporations, sole proprietorships, and certain trusts. To qualify for the QBI deduction, an individual must be involved in a qualified trade or business, which generally involves conducting activities with continuity and regularity, with the primary purpose of generating income or profit.
Insurance agents and brokers are specifically excluded from the definition of Specified Service Trades or Businesses (SSTB). This means that insurance producers, brokers, and agents are not considered to be conducting specified service businesses. As a result, insurance agents can qualify for the 199A QBI deduction, even if they have a mixture of insurance and non-insurance business. However, it is important to note that the recent QBI regulations have introduced aggregation rules, which add a layer of complexity. To qualify for the QBI deduction, insurance agents may need to separate their insurance income and expenses from their other business lines, essentially running two separate businesses.
For example, an insurance agent who is also a financial advisor may need to split their business lines to preserve the QBI deduction for insurance commissions. This could involve running one business for insurance-related income and expenses and another business for financial advisory services. However, it is important to consider the added expense and work involved in separating business lines, as it may not be worth it unless there are substantial insurance commissions involved.
In conclusion, insurance agents can qualify for the 199A QBI deduction, but the complexity of the recent regulations means that careful consideration is required to ensure compliance and maximize tax benefits.
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Running multiple businesses to qualify for the QBI deduction
The Qualified Business Income (QBI) deduction is a tax deduction that allows eligible self-employed individuals and small business owners to deduct up to 20% of their QBI. The QBI deduction was established by the 2017 Tax Cuts and Jobs Act (TCJA) and is also known as Section 199A of the Internal Revenue Code. It is available to taxpayers with total taxable income below $197,300 for single filers or $394,600 for joint filers in 2025.
To qualify for the QBI deduction, a taxpayer must be involved in a qualified trade or business. This includes sole proprietorships, partnerships, S corporations, and certain trusts. Income earned through a C corporation or by providing services as an employee is not eligible for the deduction.
Insurance agents and brokers are not considered to be conducting specified service businesses and are therefore excluded from the definition of a qualified trade or business. However, insurance producers who have a mixture of insurance and non-insurance businesses may still be able to qualify for the QBI deduction if they separate their business lines. Running multiple businesses, such as one brokerage/RIA business and one insurance business, can help high-income individuals qualify for the QBI deduction.
However, it is important to note that separating business lines to qualify for the QBI deduction can add complexity and may not be worth it unless there is a substantial amount of insurance commissions involved. Additionally, there are multiple restrictions on the QBI component of the deduction, which depend on the nature of the trade or business, the total W-2 wages paid, and the unadjusted basis immediately after acquisition (UBIA) of qualified property.
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The QBI deduction equals 20% of QBI
The Qualified Business Income (QBI) deduction is a tax deduction that allows eligible self-employed and small-business owners to deduct up to 20% of their qualified business income on their taxes. The QBI deduction is available for tax years starting after December 31, 2017, and ending on or before December 31, 2025. The deduction has two components: the QBI component and the REIT/PTP component.
The QBI component equals 20% of QBI from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust, or estate. This component is subject to limitations depending on the taxpayer's taxable income, which may include the type of trade or business, the amount of W-2 wages paid by the qualified trade or business, and the unadjusted basis immediately after acquisition (UBIA) of qualified property held by the trade or business. It may also be reduced by the patron reduction if the taxpayer is a patron of an agricultural or horticultural cooperative.
The REIT/PTP component equals 20% of qualified REIT dividends and qualified PTP income. This component is not limited by W-2 wages or the UBIA of qualified property. However, the amount of PTP income that qualifies may be limited depending on the type of the PTP's trade or business.
It is important to note that income earned through a C corporation or by providing services as an employee is not eligible for the QBI deduction. Additionally, real estate agents, brokers, insurance agents, and brokers are excluded from the SSTB definition and are not considered to be conducting specified service businesses.
For high-income individuals, the QBI deduction may be reduced or eliminated. However, there are strategies such as splitting businesses into multiple entities or contributing to retirement plans to potentially qualify for the QBI deduction.
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QBI deduction for high-income individuals
The Qualified Business Income (QBI) deduction, also known as Section 199A of the Internal Revenue Code, was established by the 2017 Tax Cuts and Jobs Act (TCJA). It allows eligible self-employed individuals, small business owners, and some trusts and estates to deduct up to 20% of their QBI. QBI is the net amount of qualified items of income, gain, deduction, and loss from any qualified trade or business, including income from partnerships, S corporations, sole proprietorships, and certain trusts.
For high-income individuals, the QBI deduction is completely eliminated. However, it is theoretically possible for financial advisors with a mixture of insurance and non-insurance businesses to separate out and preserve the QBI deduction for insurance commissions by running two separate businesses, one for insurance income and expenses, and another for other sources of income. This strategy may not be worth the added complexity and expense unless there are substantial insurance commissions involved.
To qualify for the QBI deduction, an individual must be involved in a trade or business, excluding C corporations, W-2 wages earned as an employee, and specified service trades or businesses (SSTBs). Real estate agents, brokers, insurance agents, and brokers are excluded from the SSTB definition. For non-SSTBs, if the owner's taxable income surpasses the established thresholds, the QBI deduction may be partially or fully reduced.
There are multiple restrictions on the QBI component, which depend on the nature of the trade or business, the total W-2 wages paid, and the unadjusted basis immediately after acquisition (UBIA) of qualified property owned. The QBI deduction is also subject to limitations based on the taxpayer's taxable income, which may include the type of trade or business, W-2 wages paid, and UBIA of qualified property held by the trade or business.
To reduce taxable income and qualify for the QBI deduction, individuals can consider strategies such as income deferral, contributing to a retirement plan or health savings account, making charitable contributions, and choosing married filing separate instead of jointly.
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Frequently asked questions
Insurance agents are specifically excluded from the SSTB definition, and therefore do not qualify for QBI.
QBI stands for Qualified Business Income. It is a deduction that allows eligible taxpayers to deduct up to 20% of their QBI.
Owners of sole proprietorships, partnerships, S corporations, and some trusts and estates may be eligible for QBI.
To qualify for QBI, you must be involved in a trade or business. This includes Sec. 162 trades or businesses, excluding trades or businesses conducted through a C corporation, W-2 wages earned as an employee, and specified service trades or businesses.
