For purposes of calculating the qualified tips deduction for self-employed individuals, the IRS has adopted a similar approach to the one used to calculate the IRC §199A qualified business income net income limitation for sole proprietors.
Self-employed individuals cannot claim a qualified tips deduction that is greater than the taxpayer’s gross income from the trade or business (including tips), less other deductions allocable to the trade or business.
According to the recently released instructions for Schedule A-1 (contained in the Form 1040 instructions), like the QBI net income limitation calculation, deductions allocable to the trade or business include:
- The deductible part of self-employment tax;
- The deduction for contributions to self-employed SEP, SIMPLE, and qualified plans; and
- The self-employed health insurance deduction.
Sign up for Spidell’s 2026 Post-Tax Season Update and Review webinar to review, refresh, and arm yourself to tackle extensions. Click here and register today.
Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.
