What is qualified business income (QBI)?

Qualified business income (QBI) refers specifically to the net income derived from a qualified trade or business, which is to say the profit generated from the core operations of a business after deducting allowable business expenses. This concept is particularly relevant in the context of tax deductions and the Qualified Business Income Deduction established under the Tax Cuts and Jobs Act.

To determine QBI, it is essential to factor in both gross income generated from the business activities and the relevant deductions. Importantly, QBI does not include specific types of income such as capital gains, dividends, or interest income from investments. Instead, it focuses solely on the operational income that a business generates, reflecting the performance of the business itself.

This distinction underscores why the correct answer centers on net income from a qualified trade or business, as it accurately captures the essence of QBI in the corporate tax framework. The remaining options do not align with this definition; for instance, income before tax deductions does not account for necessary expenses, total revenue excluding expenses lacks the requirement to include deductions, and passive investment income is fundamentally different from the active business income that QBI represents.